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Vertical Product Differentiation in Theory and Practice

Author

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  • Eales James

    (Purdue University, West Lafayette, Indiana, USA)

  • Binkley James K

    (Purdue University, West Lafayette, Indiana, USA)

Abstract

This study examines the role of advertising on consumers' quality perception as a method to vertically differentiate in the baking mix market. Two companies, General Mills and Chelsea Mills have competed head to head since 1930s, using drastically different strategies. General Mills has consistently promoted Bisquick and provided recipes for its use. Chelsea Mills has never advertised its product, Jiffy, preferring instead to minimize cost and provide service to retailers. Both strategies have been successful, resulting in an equilibrium resembling theoretical vertical differentiation models.

Suggested Citation

  • Eales James & Binkley James K, 2003. "Vertical Product Differentiation in Theory and Practice," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-18, September.
  • Handle: RePEc:bpj:bjafio:v:1:y:2003:i:1:n:16
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    References listed on IDEAS

    as
    1. Thomas, Louis & Shane, Scott & Weigelt, Keith, 1998. "An empirical examination of advertising as a signal of product quality," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 415-430, December.
    2. Canoy, Marcel & Peitz, Martin, 1997. "The Differentiation Triangle," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 305-328, September.
    3. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
    4. Caves, Richard E. & Greene, David P., 1996. "Brands' quality levels, prices, and advertising outlays: empirical evidence on signals and information costs," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 29-52.
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    Cited by:

    1. Stefan Napel & Gunnar Oldehaver, 2011. "A dynamic perspective on minimum quality standards under Cournot competition," Journal of Regulatory Economics, Springer, vol. 39(1), pages 29-49, February.
    2. Garella, Paolo G., 2006. ""Innocuous" minimum quality standards," Economics Letters, Elsevier, vol. 92(3), pages 368-374, September.

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