Abstract

In this paper we model the design quality competition in durable product markets. We use a duopolistic non-cooperative game theoretic framework. Each firm controls the design quality level and the price of its product. The resulting control theoretic model is solved under certain functional assumptions to describe the Nash equilibrium design quality and pricing strategies of the two competitors. We compare open and closed loop design quality and pricing strategies. We use an extensive set of numerical experiments to investigate the effects of various parameters of the model on the optimal policies. We conclude with a brief summary of our results and some useful managerial insights derived from the model.