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Strategic Quality Decisions under Heterogeneous Resource Endowments
Author(s) -
Rhee ByongDuk,
Norton Seth W.
Publication year - 2001
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2001.00235.x
Subject(s) - product differentiation , dominance (genetics) , quality (philosophy) , competition (biology) , microeconomics , industrial organization , economics , preference , resource (disambiguation) , product (mathematics) , business , computer science , ecology , computer network , biochemistry , chemistry , philosophy , geometry , mathematics , epistemology , cournot competition , biology , gene
The literature on product competition advocates a differentiation strategy assuming firm homogeneity in resources. However, firm heterogeneity in resource endowments has long been recognized in economics. Merging these two perspectives, we show that the increase in consumer preference for quality leads to firms' aggressive price competition instead of quality differentiation. As consumers look for higher quality, the cost advantage arising from superior resources increases and makes head‐to‐head competition more profitable than accommodating a less efficient rival. When consumers are highly concerned about quality, even a small resource difference leads a more efficient firm to initiate cutthroat price competition for market dominance.