Risky quality choice |
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| Institution: | 1. Oak Ridge National Laboratory, Oak Ridge, TN, USA;2. Università degli Studi di Roma “Tor Vergata”, Physics Department and NAST Centre, Via della Ricerca Scientifica 1, 00133 Roma, Italy;3. CNR-IPCF Sezione di Messina, Messina, Italy;4. Museo Storico della Fisica e Centro Studi e Ricerche Enrico Fermi, Roma, Italy;5. Argonne National Laboratory, Argonne, IL, USA;6. Università degli Studi di Milano—Bicocca, Milano, Italy;7. Università degli Studi di Roma “Tor Vergata”, Centro NAST, Via della Ricerca Scientifica 1, 00133 Roma, Italy;1. Department of Analytical, Bioanalytical Sciences, and Miniaturization, UMR 8231 Chemistry, Biology and Innovation, ESPCI Paris, PSL Research University, CNRS, 10 rue Vauquelin, 75005 Paris, France;2. Laboratoire Détection, Capteurs et Mesures, Ifremer, Centre Bretagne, Technopole pointe du diable, 29280 Plouzané, France;3. Sorbonne University, 75005 Paris, France;1. National Key Laboratory for Precision Hot Processing of Metals, School of Materials Science and Engineering, Harbin Institute of Technology, Harbin 150001, China;2. Key Laboratory of Superlight Material and Surface Technology of Ministry of Education, College of Material Science and Chemical Engineering, Harbin Engineering University, Harbin 150001, China |
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| Abstract: | In vertical product differentiation with a stochastic research technology, firms should target their research at different quality levels for efficiency. In a natural monopoly where the top firm finds it most profitable to sell to the whole market, the incentives for risk-taking and for firms to differentiate their targeted qualities are optimal. In a natural oligopoly (which results when there is sufficient dispersion of tastes), the relationship between a firm’s payoff and its quality improvement over other firms is weakened. This diminishes the firms’ incentives to differentiate and the targeted qualities are too low and too close together. |
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