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  • Msch2010

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Strategic quality choice under uncertainty: a real options approach

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>01/2010
<mark>Journal</mark>Manchester School
Issue number1
Volume78
Number of pages19
Pages (from-to)1-19
Publication statusPublished
Original languageEnglish

Abstract

In this paper we study the effects of demand uncertainty and imperfect competition on market entry and product quality choice. We allow for either fixed or flexible quality. Under a fixed quality choice, the follower chooses a higher quality provision. Quality is shown to generally increase with the volatility of demand. The strategic quality choice by the follower may trigger the exit of the leader. Furthermore, flexibility in the leader's quality choice can constitute a strategic disadvantage. Finally, the degree of horizontal differentiation between the supplied goods plays a pivotal role in determining the market structure in the long run.

Bibliographic note

The definitive version is available at www.blackwell-synergy.com