Long-Run Market Configurations in a Dynamic Quality-Ladder Model with Externalities /

The parameter governing the probability of success of investment is restricted to be the same for the two hospital types, and yet, the observed market configurations in the data are not symmetric.3 We restrict attention to the quality-ladder model without entry or exit. [...] In our analysis of the model with externalities, we find that even though the externality may be beneficial to decrease the outside good market share, it could harm the leader and allow the lagging firm to dominate the market if the asymmetry in the 5This behavior was not found under quantity competition. [...] For instance, in the case of the electric car industry, quality refers to the availability and effectiveness of the network of recharging stations. [...] The derivative of g is the same from the left and from the right of ω∗. [...] However, in some cases, the presence of the quality externality (induced by a patent released on the part of the leading firm) might also lead the lagging firm to dominate the market if the quality externality is more favorable to the lagging firm.