EQUIVALENCE OF COMPETITION MODE IN A VERTICALLY DIFFERENTIATED DUOPOLY WITH DELEGATION

This paper aims to examine the equivalence of competition mode in a vertically differentiated product market with the relative performance delegation. It demonstrates the equivalence of product quality and social welfare in this delegation game, irrespective of modes of product competition. In addition, in a three-stage game of quality-delegation-quantity (or price), it shows that the delegation coefficient is different between high-quality and low-quality firms in an asymmetric vertical differentiated model, and a high-quality firm makes better use of the delegation than a low-quality firm. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 Economic Society of South Africa.