Vertically differentiated duopoly with uncertain taste distributions

We study a vertically differentiated duopoly with quadratic production costs where firms are uncertain about consumer taste distribution. We find two key results. First, when the quality difference is relatively greater (smaller) than the difference in the two firms’ costs, uncertainty increases the market share of the high-quality (low-quality) product. Second, at low degrees of uncertainty, equilibrium social welfare benefits from a further small increase in the degree of uncertainty.