Sequential versus simultaneous choice with endogenous quality

Reiko Aoki, Thomas J. Prusa

Research output: Contribution to journalArticlepeer-review

61 Scopus citations

Abstract

In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

Original languageEnglish (US)
Pages (from-to)103-121
Number of pages19
JournalInternational Journal of Industrial Organization
Volume15
Issue number1
DOIs
StatePublished - Feb 1997

All Science Journal Classification (ASJC) codes

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

Keywords

  • Endogenous quality choice
  • Investment timing
  • R&D

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