Naeimeh HOZOURI
PhD student of Economics,Urmia University
n.hozouri@yahoo.com
Kiumars SHAHBAZI
Professor of Economics, Urmia University
k.shahbazi@urmia.ac.ir
Abstract
Quality, as one aspect of product differentiation, is the main factor in survival and sustainability of producing firms. In this paper, two main producing firms are considered, one being the main producing firm offering high quality trademarks and the other producing low quality trademarks. Then, the game is designed for these two firms, the implications of this game are referred to, and the strategies for producers of high-quality and low-quality trademarks in terms of equilibrium price, quality, and profit are discussed. The results indicate that by increasing the production costs of each producer lead the producer of high quality trademarks to increase their quality. In addition, an increase in production costs for a low quality producer lead them to reduce their quality; however, an increase in production costs for a high quality producer leads the producer of low quality trademarks to increase their quality. Finally, the relationship between the profits of a high quality producer is directly related to the quality of its own trademark and inversely related to the low quality trademark.
Keywords: Quality, Vertical differentiation, Market entrance, Game theory
JEL classification: L15, L22, L42, C73