In the real world, firms compete not only through product pricing but also through their choice of product quality.In this paper, a game model of three-firm vertical differentiation competition is constructed to analyze firms' competitive strategies and equilibria, and a distinction is made between global Nash equilibrium and local Nash equilibrium.It is found that whether the profile of quality-differentiation maximization strategies constitutes a global Nash equilibrium or a local Nash equilibrium depends on the cost parameters.The profits of both firms producing high-quality products and firms generating low-quality products are affected by the cost parameter; when a minimum quality standard is introduced, the profits of all three firms decline, the firm producing high-quality products reduce its price, and the firms producing the medium and low quality products change their prices depending on the size of the cost parameter.Continuously improving the quality of their products is the way to survive in the long run.The government needs to protect consumer interests by setting minimum quality standards.
Key words
Vertical differentiation /
Game theory /
Local nash equilibrium /
Minimum quality standards
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