IDEAS home Printed from https://ideas.repec.org/p/cca/wpaper/749.html

Spreading the Good Apples Out: Market Entry Dynamics of Quality Differentiated Products

Author

Listed:
  • Esteban Jaimovich
  • Boryana Madzharova
  • Vincenzo Merella

Abstract

The paper investigates firms' rollout strategies for quality-differentiated products across geographically dispersed markets. Using a theoretical framework that integrates nonhomo- thetic preferences, we show that premium goods are more likely to enter wealthier markets first, allowing firms to capture higher markups. We find that the main factors influencing the selection of follow-up markets differ by product quality: for premium goods, income levels are the primary determinant of expansion paths, whereas geographic proximity is the main driver for lower-quality products. Using micro-level data from the refrigera- tion industry, we confirm a significant positive association between market-entry order and income for higher-quality products. Furthermore, we observe that follow-up markets tend to be geographically more dispersed for premium goods, reflecting a shift away from proximity-based expansion strategies.

Suggested Citation

  • Esteban Jaimovich & Boryana Madzharova & Vincenzo Merella, 2025. "Spreading the Good Apples Out: Market Entry Dynamics of Quality Differentiated Products," Carlo Alberto Notebooks 749 JEL Classification: F, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:749
    as

    Download full text from publisher

    File URL: https://www.carloalberto.org/wp-content/uploads/2025/10/no.749.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2023. "Sequentially exporting products across countries," Journal of International Economics, Elsevier, vol. 142(C).
    2. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
    3. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    4. Thomas Chaney, 2014. "The Network Structure of International Trade," SciencePo Working papers hal-03579668, HAL.
    5. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    6. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    7. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    8. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    9. J. Miguel Villas-Boas, 2004. "Consumer Learning, Brand Loyalty, and Competition," Marketing Science, INFORMS, vol. 23(1), pages 134-145, December.
    10. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    11. Peter Egger & Reto Foellmi & Ulrich Schetter & David Torun, 2023. "Gravity with History: On Incumbency Effects in International Trade," Growth Lab Working Papers 219, Harvard's Growth Lab.
    12. Benjamin Faber & Thibault Fally, 2022. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1420-1459.
    13. Ina Simonovska, 2015. "Income Differences and Prices of Tradables: Insights from an Online Retailer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1612-1656.
    14. Iain M. Cockburn & Jean O. Lanjouw & Mark Schankerman, 2016. "Patents and the Global Diffusion of New Drugs," American Economic Review, American Economic Association, vol. 106(1), pages 136-164, January.
    15. Facundo Albornoz & Hector Calvo-Pardo & Gregory Corcos & Emanuel Ornelas, 2012. "Sequential exporting: how firms break into foreign markets," CentrePiece - The magazine for economic performance 364, Centre for Economic Performance, LSE.
    16. Albornoz, Facundo & Calvo Pardo, Héctor F. & Corcos, Gregory & Ornelas, Emanuel, 2012. "Sequential exporting," Journal of International Economics, Elsevier, vol. 88(1), pages 17-31.
    17. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
    18. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    19. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    20. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-822, December.
    21. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 609-644.
    22. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Firms in the European Union," Post-Print hal-01020551, HAL.
    23. Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, vol. 53(1), pages 1-15, June.
    24. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September.
    25. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    26. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 379-436.
    27. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
    28. Xavier Jaravel, 2019. "The Unequal Gains from Product Innovations: Evidence from the U.S. Retail Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 715-783.
    29. Jaimovich, Esteban & Madzharova, Boryana & Merella, Vincenzo, 2023. "Inside the white box: Unpacking the determinants of quality and vertical specialization," European Economic Review, Elsevier, vol. 152(C).
    30. repec:hal:pseose:hal-00610947 is not listed on IDEAS
    31. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    32. repec:spo:wpmain:info:hdl:2441/7an8r1ubqs93caeqs80puld0tp is not listed on IDEAS
    33. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    34. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    35. Devereux, Michael P. & Griffith, Rachel & Simpson, Helen, 2007. "Firm location decisions, regional grants and agglomeration externalities," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 413-435, April.
    36. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    37. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    38. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Picard, P.M. & Tampieri, A., 2024. "Quality and trade with many countries and industries," International Economics, Elsevier, vol. 180(C).
    2. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    3. Lashkaripour, Ahmad, 2020. "Discrete trade," Journal of International Economics, Elsevier, vol. 126(C).
    4. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    5. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    6. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.
    7. Dorothee Hillrichs, 2025. "Foreign Market Access’ Role for Export Quality," CESifo Working Paper Series 11906, CESifo.
    8. Alcalá, Francisco, 2016. "Specialization across goods and export quality," Journal of International Economics, Elsevier, vol. 98(C), pages 216-232.
    9. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
    10. Jaimovich, Esteban & Madzharova, Boryana & Merella, Vincenzo, 2023. "Inside the white box: Unpacking the determinants of quality and vertical specialization," European Economic Review, Elsevier, vol. 152(C).
    11. Curzi, Daniele & Pacca, Lucia, 2015. "Price, quality and trade costs in the food sector," Food Policy, Elsevier, vol. 55(C), pages 147-158.
    12. Latzer, Hélène & Mayneris, Florian, 2021. "Average income, income inequality and export unit values," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 625-646.
    13. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    14. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    15. Curzi, Daniele & Olper, Alessandro, 2012. "Export behavior of Italian food firms: Does product quality matter?," Food Policy, Elsevier, vol. 37(5), pages 493-503.
    16. Kan Yue, 2021. "Estimating exporter's quality: Do importers agree on rankings?," The World Economy, Wiley Blackwell, vol. 44(2), pages 462-484, February.
    17. Schetter, Ulrich, 2024. "Quality differentiation, comparative advantage, and international specialization across products," European Economic Review, Elsevier, vol. 170(C).
    18. P. M. Picard & A. Tampieri, 2021. "Vertical differentiation and trade among symmetric countries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1319-1355, June.
    19. Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
    20. Jennie Bai & Jia Guo & Benjamin R. Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports 614, Federal Reserve Bank of New York.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cca:wpaper:749. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Giovanni Bert (email available below). General contact details of provider: https://edirc.repec.org/data/fccaait.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.