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Quality, Sunk Costs and Competition

Author

Listed:
  • Crespi John M.

    (Kansas State University, jcrespi@agecon.ksu.edu)

  • Marette Stephan

    (INRA, marette@agroparistech.fr)

Abstract

This paper explores the link between quality, cost and concentration. Using concentration and cost data and product quality indicators for 2,244 products in over eighty industries in 1997 and 2002 in the US, a two-stage, ordered probit, random effects estimation explores the impact of concentration and cost on quality. The results demonstrate that overall market concentration and high fixed costs are both positively correlated with product quality across most industries. Generally, when either industry concentration or industry fixed costs increase, the likelihood of the product being higher quality increases and the likelihood of observing a lower quality decreases. Further, the authors confirm that prices are a good signal of product quality. A theoretical model is also derived.

Suggested Citation

  • Crespi John M. & Marette Stephan, 2009. "Quality, Sunk Costs and Competition," Review of Marketing Science, De Gruyter, vol. 7(1), pages 1-36, August.
    • Handle: RePEc:bpj:revmkt:v:7:y:2009:i:1:p:36:n:2
    DOI: 10.2202/1546-5616.1096
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    Cited by:

    1. Tina L. Saitone & Richard J. Sexton, 2017. "Agri-food supply chain: evolution and performance with conflicting consumer and societal demands," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 44(4), pages 634-657.
    2. Pouliot, Sebastien, 2010. "Welfare Effects of Mandatory Traceability When Firms are Heterogeneous," ISU General Staff Papers 201001010800001010, Iowa State University, Department of Economics.

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