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Review of Marketing Science

CiteScore 2018: 0.12

SCImago Journal Rank (SJR) 2018: 0.114
Source Normalized Impact per Paper (SNIP) 2018: 0.070

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Quality, Sunk Costs and Competition

John M. Crespi / Stephan Marette
Published Online: 2009-08-05 | DOI: https://doi.org/10.2202/1546-5616.1096

This paper explores the link between quality, cost and concentration. Using concentration and cost data and product quality indicators for 2,244 products in over eighty industries in 1997 and 2002 in the US, a two-stage, ordered probit, random effects estimation explores the impact of concentration and cost on quality. The results demonstrate that overall market concentration and high fixed costs are both positively correlated with product quality across most industries. Generally, when either industry concentration or industry fixed costs increase, the likelihood of the product being higher quality increases and the likelihood of observing a lower quality decreases. Further, the authors confirm that prices are a good signal of product quality. A theoretical model is also derived.

Keywords: product differentiation; market structure; sunk cost; concentration; product quality; ordered probit

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Published Online: 2009-08-05

Citation Information: Review of Marketing Science, Volume 7, Issue 1, ISSN (Online) 1546-5616, DOI: https://doi.org/10.2202/1546-5616.1096.

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