Competitive Strategies of Product with Vertical Differentiation

It is an important problem for firms to choose appropriate product quality and market strategies to obtain competitive advantage on condition that many products in modern industry show clear network externality. Product differentiation is important means for corporationpsilas product to form market power and obtain non-price competitive advantage, and it is also is the main component part of market structure and organization in industrial organizational theory. Under incomplete covering market, competitive strategies on price or quantity of product with vertical differentiation and network externality are researched in the paper. The research results show: in Bertrand price competition or Cournot quantity competition, price of both products decrease with network externality increasing, and high quality product obtains higher market price, share and profit than that of low quality product. Comparative results of game equilibrium show that market profit of products based Cournot quantity competition are greater than that of based on Bertrand price competition.