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Welfare Effects of Industrial Policies Under Asymmetric Oligopoly and Endogenous Quality Essay

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Below is an essay on "Welfare Effects of Industrial Policies Under Asymmetric Oligopoly and Endogenous Quality" from Anti Essays, your source for research papers, essays, and term paper examples.

November 4, 2012

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

Abstract
This paper analyzes how a duopoly of a multinational firm and a local firm, operating
in a vertically differentiated oligopolistic industry, compete in quality given their strategic
use of R&D costs in the absence of spillovers. By government implicitly using R&D policy
to improve the product quality produced by the domestic firm, a determination is made
on the effect of reduction in a local firm’s R&D cost parameter on national welfare. Given
Bertrand competitive model, it is observed in a closed-economy when there’s a reduction
in the marginal average R&D cost of the local firm, the maximum national social welfare
attained is increased.
JEL Classification: F – International Economics; D43 – Oligopoly
Keywords: Duopoly; Quality competition; Welfare effects

1

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

provide utility to consumers, but rather provide basic ”characteristics” which consumers
value (Lancaster 1966). New products differ characteristically from one producer to another.
Klein and Leffler (1981) describe the desirable characteristics contained in a good as quality,
the basis upon which preferences are made toward a particular commodity bundle. Therefore,
the endogenous choice of quality contained in a commodity enhances competition between or
among firms. But, investment in quality is increasingly costly. However, firms often response
to consumers ability and willingness to pay by selling different qualities of a commodity. As
a result, the dominant (high quality) firm always make more profits (Beath et al, 1987).
The endogenous choice of quality by firms has been studied in most literature. The
standard used in quality-differentiated models followed the...

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MLA Citation

"Welfare Effects of Industrial Policies Under Asymmetric Oligopoly and Endogenous Quality". Anti Essays. 10 Dec. 2018

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APA Citation

Welfare Effects of Industrial Policies Under Asymmetric Oligopoly and Endogenous Quality. Anti Essays. Retrieved December 10, 2018, from the World Wide Web: http://snehaedu.com/free-essays/Welfare-Effects-Of-Industrial-Policies-Under-357202.html