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Multi-product firms at home and away: Cost- versus quality-based competence

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  • Eckel, Carsten
  • Iacovone, Leonardo
  • Javorcik, Beata
  • Neary, J. Peter

Abstract

We develop a new model of multi-product firms which invest to improve the perceived quality of both their individual products and their brand. Because of flexible manufacturing, products closer to firms' core competence have lower costs, so firms produce more of them, and also have higher incentives to invest in their quality. These two effects have opposite implications for the profile of prices. Mexican data provide robust confirmation of the model's key prediction: firms in differentiated-good sectors exhibit quality-based competence (prices fall with distance from core competence), but export sales of firms in non-differentiated-good sectors exhibit the opposite pattern.

Suggested Citation

  • Eckel, Carsten & Iacovone, Leonardo & Javorcik, Beata & Neary, J. Peter, 2015. "Multi-product firms at home and away: Cost- versus quality-based competence," Journal of International Economics, Elsevier, vol. 95(2), pages 216-232.
    • Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:216-232
    DOI: 10.1016/j.jinteco.2014.12.012
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    More about this item

    Keywords

    Flexible manufacturing; Investment in product and brand quality; Multi-product firms; Quality competition;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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