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If at First You Don't Succeed: Profits, Prices, and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity

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  • Kala Krishna
  • Tor Winston

Abstract

Why are higher quality niches seen as intrinsically more profitable in business circles? Why do high quality products sometimes have a low real price, whereas it is unusual to see low quality products with high real prices? Can markets have quality differentiation as well as quality bunching? How does the rate at which fixed costs change with quality affect market structure? In this article we develop a new model of quality that casts light on such issues. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 2 (05)
Pages: 573-597

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Handle: RePEc:ier:iecrev:v:44:y:2003:i:2:p:573-597

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  1. Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-94, December.
  2. Bouckaert, J.M.C. & Degryse, H.A., 1998. "Price competition between an expert and a non-expert," Discussion Paper 1998-49, Tilburg University, Center for Economic Research.
  3. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
  6. Shetty, Y. K., 1987. "Product quality and competitive strategy," Business Horizons, Elsevier, vol. 30(3), pages 46-52.
  7. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-37, May.
  8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  9. Kala Krishna & Tor Winston, 1998. "A New Model of Quality," NBER Working Papers 6580, National Bureau of Economic Research, Inc.
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Cited by:
  1. Uwe Dulleck & Rudolf Kerschbamer, 2007. "Experts vs. Discounters: Consumer Free Riding and Experts Withholding Advice in Markets for Credence Goods," Working Papers 2007-21, Faculty of Economics and Statistics, University of Innsbruck.
  2. David BARDEY, 2004. "A paradoxical risk aversion effect on the consumers’ demand for quality," Discussion Papers (REL - Recherches Economiques de Louvain) 2004015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, EconWPA.
  4. David Bardey, 2004. "A paradoxical risk aversion effect on the consumers' demand for quality. Localisation et tarification," Recherches économiques de Louvain, De Boeck Université, vol. 70(1), pages 109-115.

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