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

Carsten Eckel Y · Leonardo Iacovone · Beata Smarzynska Javorcik · J. Peter Neary

203 citations0/0 files storedJournal of International Economics

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Global trade and economics International Business and FDI Merger and Competition Analysis

Abstract

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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References

1988Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence 2003The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity 1990Consumer Evaluations of Brand Extensions 1999Exceptional exporter performance: cause, effect, or both?1999Networks versus markets in international trade 2010De gustibus non est disputandum 1998Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco 1988Cooperative and Noncooperative R&D in Duopoly With Spillovers

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