Duopoly and Endogenous Single Product Quality Strategies

This research paper investigates a duopolistic market characterized by vertical product differentiation. The study considers both product qualities and consumer preferences represented as one-dimensional intervals. The focus is on analyzing the equilibrium in a duopoly game with convex production costs. In this setting, each firm has the option to present a multi-product strategy consisting of quality-price pairs, and their profits are determined by the decisions made by consumers. The findings of the study reveal that, under typical consumer preference conditions, both firms tend to offer a single quality-price pair. Additionally, the market is shown to be fully served, and firm profits decrease as the index of product quality increases. A comparative analysis is also conducted with the case of a monopoly.