Welfare Effects of Industrial Policies Under Asymmetric Oligopoly and Endogenous Quality

November 4, 2012

Entry-Exit Policy under Asymmetric Oligopoly with
Endogenous Quality
By
Joseph Toe
Department of Economics
Hawkeye federation College
Waterloo, IA 50703, U.S.A.
(E-mails: joseph.toe@hawkeyecollege.edu)

Abstract
This paper analyzes how a duopoly of a multinational ?rm and a local ?rm, operating
in a vertically di?erentiated oligopolistic industry, compete in whole tone given their strategic
use of R&D costs in the absence of spillovers. By government implicitly using R&D policy
to im prove the product quality produced by the house servant ?rm, a determination is made
on the e?ect of decrement in a local ?rms R&D cost parameter on national welf ar. Given
Bertrand competitive model, it is sight in a closed-economy when theres a reduction
in the marginal average R&D cost of the local ?rm, the maximum national social welfare
attained is increased.
JEL Classi?cation: F external Economics; D43 Oligopoly
Keywords: Duopoly; Quality competition; Welfare e?ects

1

Introduction
Firms are constantly introducing into markets new products which do not directly

provide inferior to consumers, but rather provide basic characteristics which consumers
value (Lancaster 1966). brand-new products di?er characteristically from one producer to another.




Klein and Le?er (1981) describe the desirable characteristics contained in a good as quality,
the basis upon which preferences are made toward a particular trade good bundle. Therefore,
the endogenous choice of quality contained in a good enhances competition between or
among ?rms. But, investment in quality is more and more costly. However, ?rms often response
to consumers ability and willingness to pay by selling di?erent qualities of a commodity. As
a result, the dominant (high quality) ?rm always make more pro?ts (Beath et al, 1987).
The endogenous choice of quality by ?rms has been studied in most literature. The
standard used in quality-di?erentiated models followed the...If you want to choose a full essay, order it on our website: Orderessay



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