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Product Quality and Market Size

Author

Listed:
  • Berry, Steven

    (Yale U)

  • Waldfogel, Joel

    (U of Pennsylvania)

Abstract

Do larger markets offer better products? The question has implications both for theories of cities and for theories of market organization. We document that in the restaurant industry, where quality is produced largely with variable costs, the range of qualities on offer increases in market size, with each product maintaining a small market share. In daily newspapers, where quality is produced with fixed costs, the average quality of products increases with market size, but the market does not offer much additional variety as it grows large. These results are consistent with recent IO theories of endogenous product quality and are consistent with theories of cities that place an emphasis on the consumption advantages of cities.

Suggested Citation

  • Berry, Steven & Waldfogel, Joel, 2005. "Product Quality and Market Size," Working Papers 1, Yale University, Department of Economics.
  • Handle: RePEc:ecl:yaleco:1
    as

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    File URL: http://economics.yale.edu/sites/default/files/files/Working-Papers/wp000/ddp0001.pdf
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    References listed on IDEAS

    as
    1. Sinai, Todd & Waldfogel, Joel, 2004. "Geography and the Internet: is the Internet a substitute or a complement for cities?," Journal of Urban Economics, Elsevier, vol. 56(1), pages 1-24, July.
    2. Edward L. Glaeser, Jed Kolko, and Albert Saiz, 2001. "Consumer city," Journal of Economic Geography, Oxford University Press, vol. 1(1), pages 27-50, January.
    3. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
    4. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
    5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
    8. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2005. "Market Size Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 1-25, March.
    9. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-146, December.
    10. Thomas J. Holmes, 2002. "The role of cities: evidence from the placement of sales offices," Staff Report 298, Federal Reserve Bank of Minneapolis.
    11. Lisa George & Joel Waldfogel, 2000. "Who Benefits Whom in Daily Newspaper Markets?," NBER Working Papers 7944, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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