A New Model of Quality / Kala Krishna, Tor Winston.

Format:

Book

Author/Creator:

Krishna, Kala.

Contributor:

National Bureau of Economic Research.

Winston, Tor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6580.

NBER working paper series no. w6580

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

We develop a new model of quality to capture the idea that even if a customer chooses to purchase a product, it may fail to deliver.' In this event, the customer may wish to choose some other product. We model this as a two stage game where firms first choose quality and then price. We find that in equilibrium, the high quality firm (the one with a higher probability of being able to deliver') will always make higher profits than the low quality one even if costs of quality are sharply increasing. Our work thus provides a reason for high quality niches to be inherently more profitable. The implications for welfare and equilibrium under free entry are also studied.

Notes:

Print version record

May 1998.