Working Paper: CEPR ID: DP8186
Authors: Carsten Eckel; Leonardo Iacovone; Beata Javorcik; J. Peter Neary
Abstract: We develop a new model of multi-product firms which invest to improve both the quality of their individual products and of their brand. Because of flexible manufacturing, products closer to firms' core competence have lower costs, so they produce more of them, and also have higher incentives to invest in their quality. These two effects have opposite implications for the profile of prices. Mexican data provide robust confirmation of the model's key prediction: firms in differentiated-good sectors exhibit quality-based competence (prices fall with distance from core competence), but export sales of firms in non-differentiated-good sectors exhibit the opposite.
Keywords: Flexible Manufacturing; Multiproduct Firms; Quality Competition
JEL Codes: F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms that produce goods closer to their core competencies (L23) | lower costs (D61) |
| lower costs (D61) | sell products at lower prices (L11) |
| lower prices (P22) | negative correlation with sales profiles (C29) |
| Firms that invest more in enhancing quality (L15) | command higher prices (D49) |
| command higher prices (D49) | positive correlation with sales profiles (C39) |
| distance from core competencies (F23) | pricing strategies (D49) |
| distance from core competencies (F23) | sales strategies (L21) |
| product differentiation (L15) | interaction with type of competence (L15) |