Abstract
This paper examines the persistence of market leadership when firms invest nonexclusively in product-improving R&D prior to competing in a differentiated Bertrand market. The analysis establishes that whether a leader maintains its position depends on the nature and extent of differentiation. While a leader in a horizontally differentiated market always becomes increasingly dominant as a result of its investment, there exist equilibria in which a leader in a vertically differentiated market loses its position.
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This paper has benefitted from the remarks of Michael Whinston, Richard Caves, Allen Scafuri and an anonoymous referee for theReview.
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Sorenson, T.L. Product improvement and leadership in differentiated markets. Rev Ind Organ 10, 373–388 (1995). https://doi.org/10.1007/BF01027081
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DOI: https://doi.org/10.1007/BF01027081