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Time‐to‐market in vertically differentiated industries
Author(s) -
Bacchiega Emanuele,
Gabszewicz Jean J.,
Tarola Ornella
Publication year - 2007
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2007.00060.x
Subject(s) - quality (philosophy) , economics , monopoly , balance (ability) , microeconomics , product differentiation , factor market , market structure , product (mathematics) , industrial organization , market share , cournot competition , finance , epistemology , medicine , philosophy , geometry , mathematics , physical medicine and rehabilitation
This paper analyzes the optimal time to introduce a new product in a vertical differentiated market when the delay between innovation and market opening can be shortened through investments whose costs increase, the shorter the desired delay. The timing process is affected by the trade‐off between being first and getting monopoly profits, and postponing entry for reducing time‐to‐market costs. We study the balance of these forces and how this balance is influenced by market structure. In our model, it is possible a priori to observe at the optimal solution both a quality‐upgrading equilibrium (first entering the market with the low quality good and then marketing the high quality variant) and quality‐downgrading equilibrium (first entering the market with the high quality good and then marketing the low quality variant) while in the existing published literature a quality‐upgrading equilibrium is always observed.