Endogenous Timing and Quality Standards in a Vertically Differentiated Duopoly

Abstract

SummaryThe consequences of the adoption of quality standards on the endogenous timing of moves are investigated in a vertically differentiated duopoly. We obtain two main results. First, we prove that, when the low-quality firm is Stackelberg leader in the quality stage, the related MQS is ineffective. Second, the timing game in the quality space has a unique equilibrium in pure strategies, involving simultaneous moves. The related optimal MQS is time consistent, although suboptimal from the viewpoint of the regulator.