Year: 2025
Type: report
Abstract: We examine duopolistic competition within a real options framework, where two firms provide horizontally differentiated core goods along with vertically differentiated add-on services.Focusing on consumer savviness regarding the quality of add-on services, we analyze its impact on prices, investment timing, and social welfare.Our analysis yields three main findings.First, the price of a core good with high-quality add-on services is lower (resp.higher) than that of a core good with low-quality add-on services when the proportion of non-savvy consumers in the population is high (resp.low).Second, both firms are incentivized to invest preemptively when the proportion of non-savvy consumers is high or the quality difference in add-on services is small; however, when the proportion of non-savvy consumers is low or the quality gap is significant, only the firm offering high-quality add-on services retains this incentive.Third, as the proportion of non-savvy consumers decreases, the flow of social surplus increases; nonetheless, the overall expected social welfare may decline due to a delay in the follower's investment and a prolonged monopoly duration.This suggests a need for a policy mix that combines consumer protection with the encouragement of market entry.
Authors: 大洞, 公平, 水野, 敬三, Daido, Kohei, Mizuno, Keizo
Institution: Kwansei Gakuin University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7208101613