High-quality producers in a vertically differentiated market can reap superior profits by charging higher prices, selling greater quantities, or both. If qualities are known by consumers and production costs are constant, then having a higher quality secures the producer both higher price and higher quantity; if marginal costs are rising, having a higher quality assures only higher price. If only some consumers can discern quality but others cannot, then high- and low-quality producers may set a common price, but the high-quality producer will sell more. In this context, quality begets quantity. Empirical analyses suggest that in both the mutual fund and automobile industries, high-quality producers sell more units than their low-quality competitors, but at no higher price (or markup) per unit.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5728.
Length: Date of creation: Aug 1996 Date of revision: Handle: RePEc:nbr:nberwo:5728
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Find related papers by JEL classification: L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Brown, Stephen J & Goetzmann, William N, 1995.
" Performance Persistence,"
Journal of Finance,
American Finance Association, vol. 50(2), pages 679-98, June.
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