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The Quality-Income effect and the selection of location

  • Bacchiega, Emanuele
  • Minniti, Antonio

We analyze a location-choice model with two vertically differentiated firms and two regions with different consumer income. We find that the high-quality producer settles in the poor region and the low-quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough. This apparently counter-intuitive result is not determined by technology or size issues; rather, it relies on the relationship between regional income disparities and product quality, which we call the "Quality-Income effect."

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 209-215

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Handle: RePEc:eee:juecon:v:65:y:2009:i:2:p:209-215
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  2. John Sutton, 2007. "Quality, Trade and the Moving Window: The Globalisation Process," Economic Journal, Royal Economic Society, vol. 117(524), pages F469-F498, November.
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  13. Joel Waldfogel, 1999. "Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated Product Markets," NBER Working Papers 7391, National Bureau of Economic Research, Inc.
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  17. Hasan Faruq, 2006. "New Evidence on Product Quality and Trade," Caepr Working Papers 2006-019, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  18. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
  19. Belleflamme, Paul & Picard, Pierre & Thisse, Jacques-Francois, 2000. "An Economic Theory of Regional Clusters," Journal of Urban Economics, Elsevier, vol. 48(1), pages 158-184, July.
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