Profitability of price and quantity strategies in a duopoly with vertical product differentiation
Yasuhito Tanaka A1
of Law, Chuo University, 742-1, Higashinakano, Hachioji, Tokyo,
192-0393, JAPAN (e-mail: email@example.com)
Using a model according to Mussa and Rosen (1978) and Bonanno and
Haworth (1998) we consider a sub-game perfect equilibrium of a
two-stage game in a duopolistic industry in which the products of the
firms are vertically differentiated. In the industry, there are a high
quality firm and a low quality firm. In the first stage of the game,
the firms choose their strategic variables, price or quantity. In the
second stage, they determine the levels of their strategic variables.
We will show that, under an assumption about distribution of consumers'
preference, we obtain the result that is similar to Singh and Vives
(1984)' proposition (their Proposition 3) in the case of substitutes
with nonlinear demand functions. That is, in the first stage of the
game, a quantity strategy dominates a price strategy for both firms.
Keywords and Phrases: Price and quantity strategies, Duopoly, Vertical product differentiation.