Competition and the incentive to produce high quality

Journal Article (Journal Article)

Previous literature indicates that, when quality is a choice variable, firms have an incentive to produce high quality to maintain their reputations with consumers. The strategic interaction among firms and competition for market share is not considered. This paper finds that, when firms compete for market share, perfect equilibria in which firms produce high-quality goods need not exist. Competition for customers can eliminate the price premium needed to induce firms to maintain a reputation for high-quality production. In this case, economists and policy analysts should pay greater attention to the interaction among firms and the institutions, such as professional associations, that structure interfirm relations when considering whether firms have an incentive to produce high-quality goods.

Full Text

Duke Authors

Cited Authors

  • Kranton, RE

Published Date

  • August 1, 2003

Published In

Volume / Issue

  • 70 / 279

Start / End Page

  • 385 - 404

International Standard Serial Number (ISSN)

  • 0013-0427

Digital Object Identifier (DOI)

  • 10.1111/1468-0335.t01-1-00289

Citation Source

  • Scopus