If at First You Don't Succeed...: Profits, Prices and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity
Posted: 19 Sep 2002
Why are higher quality niches seen as intrinisically more profitable in business circles? Why do high quality products sometimes have a low real price, while it is unusual to see low quality products with high real prices? Can markets have quality differentiation as well as quality bunching? How does the rate at which fixed costs change with quality affect market structure? In this paper we develop a new model of quality which casts light on such issues.
Keywords: Quality Choice, Mixed Strategies, Free Entry, Endogenous Market Structure, Natural Oligopolies, Resampling, Quality Dispersion, Fixed Costs, Product Differentiation
JEL Classification: D4, D6, L1, L2
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