Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities

CIRPEE Working Paper 15-03

28 Pages Posted: 12 Feb 2015 Last revised: 10 Mar 2017

See all articles by Mario Samano

Mario Samano

HEC Montreal

Marc Santugini

University of Virginia - Department of Economics

Date Written: March 8, 2017

Abstract

We analyze the type of market structures that arise in the long-run when quality externalities and asymmetric R&D capabilities exist in the context of a quality-ladder dynamic model. An example of such externalities is a patent release by the leading firm: an improvement of quality of this firm's good affects the quality of the other firms' products. This externality can be thought of as an increase in compatibility in a network. We show that it is possible for this model to generate, in the long-run, multi-modal probability distributions over different market structures from the same parameter values. In some cases, the lagging firm may even become the dominant firm depending on the degree of the externality. This may have implications for the estimation and simulation of this class of models.

Keywords: Differentiated-good markets, quality-ladder model, externalities, industry dynamics, market structures

JEL Classification: C61, C73, L13

Suggested Citation

Samano, Mario and Santugini, Marc, Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities (March 8, 2017). CIRPEE Working Paper 15-03. Available at SSRN: https://ssrn.com/abstract=2563585 or http://dx.doi.org/10.2139/ssrn.2563585

Mario Samano

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Marc Santugini (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
32
Abstract Views
253
PlumX Metrics