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

  • Beata Javorcik
  • Peter Neary
  • Carsten Eckel
  • Leonardo Iacovone

We develop a new model of multi-product firms which invest to improve both the quality of their individual products and of their brand.� Because of flexible manufacturing, products closer to firms' core competence have lower costs, so they 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.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 522.

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Date of creation: 01 Dec 2010
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Handle: RePEc:oxf:wpaper:522
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