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Title: Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Heterogeneity
Authors: Samano, Mario
Santugini, Marc
Keywords: Differentiated-good markets
Quality-ladder model
Dynamic investment
Issue Date: 2015-02
Series/Report no.: Cahiers du CIRPÉE;15-03
Abstract: We study the long-run market configurations in a quality-ladder dynamic model. Specifically, we assume that the return to investment in quality differs across the firms. That is, for a given level of investment, one firm has a higher probability to raise the quality of the good it produces. We show that the model can generate five different types of long-run market configurations (market collapse, market collapse or monopoly, monopoly, duopoly and monopoly, and duopoly). A high degree of heterogeneity in the return to investment can mitigate the effect of highly reversible investments on the probability of market collapse, giving rise to non-negligible probabilities of observing a duopoly or even dominance of the firm with the lowest return to investment.
Appears in Collections:Cahiers de recherche du CIRPÉE

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