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Product Quality in Different Markets and Cost Structure

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  • Kiyoshi Matsubara

Abstract

This paper analyzes the behavior of monopoly firm serving its products to two countries. The main focus of this paper is on how the product-quality choice in different markets are related with the cost structure of the firm. First, This paper examines the effects of production and R&D costs on the product quality separately, and then discusses the general case where the both costs exists. This paper shows that if only production costs exist, providing different levels of product quality is optimal and that if only R&D costs exist, providing the same level of quality is optimal. About the general case, this paper shows the conditions with which the same-quality strategy is optimal in terms of utility and other parameters. As an application, this paper discusses the firm's decision on entry in a foreign market either by exports or FDI. The result is consistent with observations in emerging economies.

Suggested Citation

  • Kiyoshi Matsubara, 2011. "Product Quality in Different Markets and Cost Structure," ERSA conference papers ersa11p1062, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa11p1062
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    References listed on IDEAS

    as
    1. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Symeonidis, George, 2003. "Comparing Cournot and Bertrand equilibria in a differentiated duopoly with product R&D," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 39-55, January.
    4. Rajat Acharyya, 2005. "Consumer Targeting Under Quality Competition In A Liberalized Vertically Differentiated Market," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 129-150, June.
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