| Abstract: |
We modify the price-setting version of the vertically differentiated duopoly
model by Aoki (2003) by introducing an extended game in which firms
noncooperatively choose the timing of moves at the quality stage. Our results
show that there are multiple equilibria in pure strategies, in which firms
always select sequential play at the quality stage. We also investigate the
mixed-strategy equilibrium, revealing that the probability of generating
outcomes out of equilibrium is higher than its complement to one. In the
alternative of full market coverage, we show that the quality stage is solved
in dominant strategies and therefore the choice of roles becomes irrelevant as
the Nash and Stackelberg solutions coincide. |