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Quality and Competition

Author

Listed:
  • Rajiv D. Banker

    (School of Management, University of Texas at Dallas, Richardson, Texas 75083)

  • Inder Khosla

    (Booz-Allen and Hamilton, 225 West Wacker Dr., Suite 1700, Chicago, Illinois 60606)

  • Kingshuk K. Sinha

    (Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455)

Abstract

In recent years, the practitioner literature in operations management has seen a dramatic surge in articles on quality management. It reflects the increased emphasis on quality by U.S. firms, which has been attributed largely to increased competition faced by them. The question of how quality is influenced by competitive intensity, however, has not received much attention, either in the practitioner or the academic research literatures. The notion of competitive intensity itself has not been defined precisely. In this paper, we develop formal models of oligopolistic competition to investigate whether equilibrium levels of quality increase as competition intensifies. We consider three different competitive settings: (i) asymmetric duopolistic competition where the dominant firm's intrinsic demand potential decreases; (ii) a symmetric duopoly where the firms are precluded from cooperating in setting quality levels; and (iii) symmetric oligopolistic competition where the number of firms increases. We find that the relation between equilibrium quality and competitive intensity depends on what is understood by increased competition and, in addition, the relation is contingent on the values of parameters describing the cost and demand structure for the industry.

Suggested Citation

  • Rajiv D. Banker & Inder Khosla & Kingshuk K. Sinha, 1998. "Quality and Competition," Management Science, INFORMS, vol. 44(9), pages 1179-1192, September.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:9:p:1179-1192
    DOI: 10.1287/mnsc.44.9.1179
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    References listed on IDEAS

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    3. K. Sridhar Moorthy, 1988. "Product and Price Competition in a Duopoly," Marketing Science, INFORMS, vol. 7(2), pages 141-168.
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    5. Polo, Michele, 1991. "Hotelling Duopoly with Uninformed Consumers," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 701-715, December.
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