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Multi-product firms at home and away: Cost- versus quality-based competence

Listed author(s):
  • Eckel, Carsten
  • Iacovone, Leonardo
  • Javorcik, Beata
  • Neary, J. Peter

We develop a new model of multi-product firms which invest to improve the perceived quality of both their individual products and their brand. Because of flexible manufacturing, products closer to firms' core competence have lower costs, so firms produce more of them, and also have higher incentives to invest in their quality. These two effects have opposite implications for the profile of prices. Mexican data provide robust confirmation of the model's key prediction: firms in differentiated-good sectors exhibit quality-based competence (prices fall with distance from core competence), but export sales of firms in non-differentiated-good sectors exhibit the opposite pattern.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 26852.

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Date of creation: 2015
Publication status: Published in Journal of International Economics 2 95(2015): pp. 216-232
Handle: RePEc:lmu:muenar:26852
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