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| Author: | Lehmann-Grube, U. |
| Title: | Strategic choice of quality when quality is costly: The persistence of the high-quality advantage |
| Journal: | RAND Journal of Economics
1997 : SUMMER, VOL. 28:2, p. 372-384 |
| Index terms: | QUALITY STRATEGY DECISION MAKING COSTS |
| Language: | eng |
| Abstract: | This study gives a straightforward generalization of the high-quality advantage. The study shows in a two-firm setting that the high-quality advantage in fact persists for any cost function that is increasing and convex in the chosen quality if the costs of quality are independent of output. The fixed-cost case is the relevant one for a two-srage game because companies have to commit themselves to a certain quality level to prevent the Bertrand outcome during price competition. The most natural commitment is sunk costs of quality. |
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