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A Game Theory Approach in Differentiation Competition of Market

ZHANG Tao, Gu Tianzhou


In recent years, the issue of products quality has become increasingly important. Poor-quality products in market are attracting more and more public concern. Using three-stages Hotelling model considering an oligopoly market, the paper analyzed the quality competition, the price and the regulator’s management, and explored the condition of the existence of sub-game perfect Nash Equilibrium. Results showed that the firm had the incentives to adopt the low-level products, and the network market share became the key factor of the quality competition. The regulator’s management should soften or eliminate the perceptions gap between buyers and firms to improve the social welfare.


differentiation competition; quality; pricing; network effects; game theory

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