Quality Differentiationif Market Share matters

Using a vertical differentiation model, we investigate the product quality strategiesof two competing firms maximizing market shares. The rms are facing variable costs ofquality improvement and choose their prices under the constraint of nonnegative prots.We show that in equilibrium there is no differentiation in quality if the market coverageis either increasing or decreasing and concave in quality. Otherwise the existence of anequilibrium depends on the structure of the game...