Research regarding the effect of technology spillovers on marketing strategy is limited. This paper explores the effects of technology spillovers on vertical positioning decisions using analytical models. Three scenarios are analyzed in a popular setting of fully covered markets with a pair of unequal duopolies playing a quality-price two-stage game. The first model is set as a simultaneous game without production costs. Under this scenario firms opt for maximum vertical differentiation and the results indicate that technology spillovers do not have an effect on vertical positioning. The second model considers asymmetric production costs. Under these conditions, the spillovers engender a quality improvement for the low-end firm's products while decreasing the quality of the high-end firm. The third scenario considers a sequential price determination game under conditions of two-way technology spillovers. In this model, technology spillovers engender quality increases for both firms. The results have significant implications for marketing strategy research and practice.
Group for Research in Decision Analysis