Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92732
Authors: 
Matsushima, Noriaki
Liu, Ren-Jye
Year of Publication: 
2012
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 854
Abstract: 
We investigate what kind of competitive pressure induces existing firms to engage in more intensive innovation activities. We examine two types of competitive pressure: a price decrease in competitive fringe firms and a quality improvement therein. We use an oligopoly model with vertical differentiation to investigate this question. We show that a decrease in the exogenous price of competitive firms induces the two existent leading firms (one high-quality firm and one mid-quality firm) to engage in quality investments more if the ex ante quality level of the high quality product is large enough; otherwise, only the mid-quality firm engages more in quality investment. We also show that an increase in the exogenous quality level of competitive firms diminishes the incentive of the mid-quality firm to engage in quality investments.
Subjects: 
fringe firms
competitive pressure
investments
vertical differentiation
JEL: 
L13
O31
D43
Document Type: 
Working Paper

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