Second-Mover Advantages in Dynamic Quality Competition
GEABA Discussion Paper No. 01-18
24 Pages Posted: 5 Jun 2002
There are 2 versions of this paper
Second-Mover Advantages in Dynamic Quality Competition
Date Written: 2001
Abstract
This paper explores a dynamic model of product innovation, extending the work of Dutta, Lach and Rustichini (1995). It is shown that if R&D costs for quality improvements are low, the dynamic competition is structured as a race for being the pioneer firm with payoff equalization in equilibrium, but switches to a waiting game with a second-mover advantage in equilibrium if R&D costs are high. Moreover, the second-mover advantage increases monotonically as R&D becomes more costly.
Keywords: Innovation, vertical product differentiation, timing, second-mover advantage
JEL Classification: L13, L15, O31, O32
Suggested Citation: Suggested Citation
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