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Quality Investments and Costly Adoption

Author

Listed:
  • Rozzi Roberto

    (Royal Holloway University of London, Egham, UK)

  • Schmitt Stefanie Y.

    (University of Bamberg, Feldkirchenstr. 21, 96052 Bamberg, Germany)

Abstract

In many markets, consumers incur adoption costs when switching from a low-quality good to a high-quality good. We analyze under which circumstances the competing firm has an incentive to invest in high quality. We investigate two scenarios: (i) homogeneous and (ii) heterogeneous adoption costs. If adoption costs are homogeneous, the competing firm produces high-quality goods for sufficiently low adoption costs, and an increase in adoption costs reduces the range of values for which the competing firm invests in high quality. In contrast, if adoption costs are heterogeneous, the competing firm produces high-quality goods for sufficiently high adoption cost heterogeneity, and an increase in average adoption costs expands the range of values for which the competing firm invests in high quality.

Suggested Citation

  • Rozzi Roberto & Schmitt Stefanie Y., 2026. "Quality Investments and Costly Adoption," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 26(1), pages 81-110.
    • Handle: RePEc:bpj:bejtec:v:26:y:2026:i:1:p:81-110:n:1007
    DOI: 10.1515/bejte-2025-0113
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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