Better Product Quality May Lead to Lower Product Price
Bibliographic Data
| ID | 19038424 |
|---|---|
| Authors | Regis Chenavaz (0000-0002-5911-2045, 1KEDGE Business School, AMSE, CNRS & EHESS, Domaine de Luminy, rue Antoine Bourdelle, 13288 Marseille, France, corresponding author) |
| Year | 2016 |
| Volume | 17 |
| Issue | 1 |
| Publication date | 2016-07-13 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | The B E Journal of Theoretical Economics (JOURNAL) |
| Journal identifiers | ISSN: 1935-1704 • E-ISSN: 2194-6124 |
| Publisher | De Gruyter (PUBLISHER • DE) |
| DOI | 10.1515/bejte-2015-0062 |
| OpenAlex | W2468697316 |
| Language | EN |
| Citations received | 1 |
| References cited | 33 |
This article analyzes the conditions under which better product quality implies higher or lower product price. In an optimal control framework, I make the following assumptions: The firm sets the dynamic pricing and product innovation policies; product innovation raises quality, which drives production cost, and consumers are sensitive to price and quality. I derive a rule of price-quality relationship that stresses the influence of quality on price through the effects of cost (positive), sales (negative), and markup (positive). This article shows that, while maximizing profit and despite a quality and cost increases, the firm may decrease product prices because of the possibility of generating more sales as a result of combining better quality with lower price. This sales effect solves the puzzle of a negative price-quality relationship. More generally, the sales effect mitigates the ability of price to convey information about quality
Business · Economics · Industrial organization · Limit price · Markup language · Microeconomics · Monetary economics · Price level · Computer Science · Consumer Market Behavior and Pricing · Innovation Diffusion and Forecasting · Mathematics · Merger and Competition Analysis
| Unique citing works | 1 |
|---|---|
| Citations per year | 0,1 |
| Citation span | 2016 - 2016 (1) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 1 |