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Quality, Class, and Competition

Author

Listed:
  • Uday S. Karmarkar

    (Anderson School, University of California, Los Angeles, Los Angeles, California 90024)

  • Richard C. Pitbladdo

    (John Hancock Financial Services, Boston, Massachusetts 02117)

Abstract

This paper integrates the process oriented view of quality in manufacturing with the multi-attribute product positioning and customer preference models of marketing, within the context of traditional economic models of markets and competition. In manufacturing applications, "quality" is often defined as conformance to specifications or as meeting standards on the performance of the product. In the marketing and economics literature, "quality" typically refers to the performance level or "class" of the product. To capture both perspectives, a product is described by a vector of performance attributes, and the population of produced units is assumed to display a distribution on these attributes. The distribution perceived by customers may differ from the actual. The attribute levels (means) may be taken to define the class, or performance of the product. Quality in the sense of conformance is then conceptually identified with the absence of variation of the population. Consumer preferences are modelled by a cardinal utility function defined on the vector of attributes and price, and customers maximize expected utility. Product manufacturers are assumed to face a cost of producing a given population distribution. Under specific assumptions regarding costs and utility functions, models of monopoly, oligopoly and perfect competition are formulated. The model clarifies the distinction between product class (performance) and conformance quality, identifies the sources of quality improvement, and provides an economic framework relating issues like product positioning, process improvement, quality function deployment (QFD) and customer preference estimation. This framework is used to address issues such as quality costs and benefits and the economics of investments in quality.

Suggested Citation

  • Uday S. Karmarkar & Richard C. Pitbladdo, 1997. "Quality, Class, and Competition," Management Science, INFORMS, vol. 43(1), pages 27-39, January.
  • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:1:p:27-39
    DOI: 10.1287/mnsc.43.1.27
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    Citations

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    Cited by:

    1. Yoo, Seung Ho, 2014. "Product quality and return policy in a supply chain under risk aversion of a supplier," International Journal of Production Economics, Elsevier, vol. 154(C), pages 146-155.
    2. Ryan W. Buell & Dennis Campbell & Frances X. Frei, 2016. "How Do Customers Respond to Increased Service Quality Competition?," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 585-607, October.
    3. Kahraman, Cengiz & Ertay, Tijen & Buyukozkan, Gulcin, 2006. "A fuzzy optimization model for QFD planning process using analytic network approach," European Journal of Operational Research, Elsevier, vol. 171(2), pages 390-411, June.
    4. Lu, Xin & Shang, Jennifer & Wu, Shin-yi & Hegde, Gajanan G. & Vargas, Luis & Zhao, Daozhi, 2015. "Impacts of supplier hubris on inventory decisions and green manufacturing endeavors," European Journal of Operational Research, Elsevier, vol. 245(1), pages 121-132.
    5. Wacker, John G. & Yang, Chen-Lung & Sheu, Chwen, 2006. "Productivity of production labor, non-production labor, and capital: An international study," International Journal of Production Economics, Elsevier, vol. 103(2), pages 863-872, October.
    6. Fan, Ming & Kumar, Subodha & Whinston, Andrew B., 2009. "Short-term and long-term competition between providers of shrink-wrap software and software as a service," European Journal of Operational Research, Elsevier, vol. 196(2), pages 661-671, July.
    7. Chan, Lai-Kow & Wu, Ming-Lu, 2002. "Quality function deployment: A literature review," European Journal of Operational Research, Elsevier, vol. 143(3), pages 463-497, December.
    8. Alamri, Adel A. & Syntetos, Aris A., 2018. "Beyond LIFO and FIFO: Exploring an Allocation-In-Fraction-Out (AIFO) policy in a two-warehouse inventory model," International Journal of Production Economics, Elsevier, vol. 206(C), pages 33-45.
    9. Karaer, Özgen & Erhun, Feryal, 2015. "Quality and entry deterrence," European Journal of Operational Research, Elsevier, vol. 240(1), pages 292-303.
    10. Nair, Anand & Narasimhan, Ram, 2006. "Dynamics of competing with quality- and advertising-based goodwill," European Journal of Operational Research, Elsevier, vol. 175(1), pages 462-474, November.
    11. Fernando Bernstein & Awi Federgruen, 2004. "A General Equilibrium Model for Industries with Price and Service Competition," Operations Research, INFORMS, vol. 52(6), pages 868-886, December.
    12. Kwon, Yong Woo & Sheu, Jiuh-Biing & Yoo, Seung Ho, 2022. "Quadratic quantity discount contract under price-dependent demand and consumer returns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    13. Yoo, Seung Ho & Cheong, Taesu, 2018. "Quality improvement incentive strategies in a supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 114(C), pages 331-342.
    14. Yoo, Seung Ho & Shin, Hojung & Park, Myung-Sub, 2015. "New product development and the effect of supplier involvement," Omega, Elsevier, vol. 51(C), pages 107-120.
    15. Ioannis Bellos & Stylianos Kavadias, 2021. "Service Design for a Holistic Customer Experience: A Process Framework," Management Science, INFORMS, vol. 67(3), pages 1718-1736, March.
    16. Vörös, József, 2008. "A kereslet hatása az árak, a minőség és a fejlesztési döntések dinamikájára [The effect of demand on the dynamics of prices, quality and development decisions]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1094-1115.
    17. Voros, Jozsef, 2002. "Product balancing under conditions of quality inflation, cost pressures and growth strategies," European Journal of Operational Research, Elsevier, vol. 141(1), pages 153-166, August.
    18. Noah Gans, 2002. "Customer Loyalty and Supplier Quality Competition," Management Science, INFORMS, vol. 48(2), pages 207-221, February.
    19. Sujana Adapa, 2013. "Circumstances Probing Internet Banking Users to Use Alternative Channels: Thematic Matrix Display Analysis," Information Management and Business Review, AMH International, vol. 5(1), pages 1-12.

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