Second-Mover Advantages in Dynamic Quality Competition

GEABA Discussion Paper No. 01-18

24 Pages Posted: 5 Jun 2002

See all articles by Heidrun C. Hoppe-Wewetzer

Heidrun C. Hoppe-Wewetzer

University of Hannover - Department of Economics; and CEPR

Ulrich Lehmann-Grube

University of Hamburg - Department of Economics

Multiple version iconThere are 2 versions of this paper

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

Hoppe-Wewetzer, Heidrun C. and Lehmann-Grube, Ulrich, Second-Mover Advantages in Dynamic Quality Competition (2001). GEABA Discussion Paper No. 01-18, Available at SSRN: https://ssrn.com/abstract=310407 or http://dx.doi.org/10.2139/ssrn.310407

Heidrun C. Hoppe-Wewetzer (Contact Author)

University of Hannover - Department of Economics; and CEPR ( email )

Koenigsworther Platz 1
30167 Hannover
Germany

HOME PAGE: http://www.mik.uni-hannover.de

Ulrich Lehmann-Grube

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
D-20146 Hamburg
Germany
+49 40 4123 4632 (Phone)
+49 40 4123 6361 (Fax)

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