Quality and Advertising in a Dynamic Duopoly

We investigate a differential duopoly game where each firm, through capital accumulation over time, may invest both in persuasive advertising campaigns aimed at increasing the willingness to pay of consumers and in an R&D process aimed at increasing the level of own product quality. In contrast with the acquired wisdom based on static models, the firm providing the market with the inferior variety may earn higher profits than the rival. More than this, we show that there exists a range of parameters wherein the low quality firm commands monopoly power