Asymmetric competition in food industry with product substitutability

Abstract

The paper analyses the effects of asymmetric competition on food industry with product substitutability by establishing a two-stage dynamic game model. The equilibrium is captured under both the Cournot competition and Stackelberg competition. Firstly, under the Cournot competition, lower costs yield a higher quality, more outputs and higher profits. Secondly, the cost difference increases the quality difference, the market size difference and the profit difference. Thirdly, a U-shaped relationship between the product substitutability and the food quality exists. Finally, compared with the case under the Cournot competition, the food security is significantly reduced with the lower quality and less outputs in the case under the Stackelberg competition.