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If at First You Don't Succeed…: Profits, Prices, and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity*
Author(s) -
Krishna Kala,
Winston Tor
Publication year - 2003
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.t01-1-00081
Subject(s) - quality (philosophy) , economics , microeconomics , market structure , industrial organization , affect (linguistics) , business , marketing , commerce , philosophy , linguistics , epistemology
Why are higher quality niches seen as intrinsically more profitable in business circles? Why do high quality products sometimes have a low real price, whereas 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 article we develop a new model of quality that casts light on such issues.