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<p>In this article, we analyze how the quality elasticity of marginal cost affects the product-quality choices of a firm producing a low-quality product and the profit differential between high- and low-quality-product firms, given that markets are uncovered and the quality of the product produced by the high-quality firm is given. We find that even when elasticity is elastic, the firm producing the low-quality product does not always reduce the quality of the product as elasticity increases. Furthermore, when elasticity is high, the low-quality-product firm obtains more profit than the high-quality-product firm. Finally, the socially preferable product quality is always greater than the profit-maximizing product quality.</p>

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Product Quality Choices of Entrant Firms with Quality-dependent Costs

  • 期刊论文

  • 发表日期：

    2026年6月23日

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  • Akio Kawasaki,
  • Takao Ohkawa,
  • Makoto Okamura

摘要

In this article, we analyze how the quality elasticity of marginal cost affects the product-quality choices of a firm producing a low-quality product and the profit differential between high- and low-quality-product firms, given that markets are uncovered and the quality of the product produced by the high-quality firm is given. We find that even when elasticity is elastic, the firm producing the low-quality product does not always reduce the quality of the product as elasticity increases. Furthermore, when elasticity is high, the low-quality-product firm obtains more profit than the high-quality-product firm. Finally, the socially preferable product quality is always greater than the profit-maximizing product quality.