IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v145y2013i2p696-701.html
   My bibliography  Save this article

Role of demand-side strategy in quality competition

Author

Listed:
  • Ye, Guangliang
  • Mukhopadhyay, Samar K.

Abstract

The research questions studied in this paper concern the role of demand side strategy for a firm engaged in duopolistic competition in quality and price. A demand side strategy research looks towards markets and consumers unlike the traditional resource side strategy research that looks upstream — into the firm’s resources and its supply side. We examine whether following a demand side strategy would benefit the firm, the consumers or both. In a market where two firms are competing with each other, we first find the equilibrium quality and price levels for the traditional case where the two firms optimize their own profit function. We use this case as a benchmark case for comparison. Next, we let one firm (the lower quality firm) adopt a demand side strategy operationalized by an objective function where the profit is augmented by consumer surplus. The equilibrium results show that a demand side strategy would increase the product quality level in the market, and improve the adopter firm’s competitiveness at the same time increasing the market consumer surplus. We also study the case where the higher quality firm adopts demand side strategy and compare the results with the two cases mentioned above. Overall, we find that adopting a demand side strategy would benefit the adopter firm’s profitability and the consumers. We, therefore, find evidence of what the strategy literature has been predicting about the role of demand side strategy.

Suggested Citation

  • Ye, Guangliang & Mukhopadhyay, Samar K., 2013. "Role of demand-side strategy in quality competition," International Journal of Production Economics, Elsevier, vol. 145(2), pages 696-701.
    • Handle: RePEc:eee:proeco:v:145:y:2013:i:2:p:696-701
    DOI: 10.1016/j.ijpe.2013.05.024
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092552731300251X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2013.05.024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Yasemin Y. Kor & Joseph T. Mahoney & Steven C. Michael, 2007. "Resources, Capabilities and Entrepreneurial Perceptions," Journal of Management Studies, Wiley Blackwell, vol. 44(7), pages 1187-1212, November.
    3. Samar K. Mukhopadhyay & Panagiotis Kouvelis, 1997. "A Differential Game Theoretic Model for Duopolistic Competition on Design Quality," Operations Research, INFORMS, vol. 45(6), pages 886-893, December.
    4. Ashish Arora & Alfonso Gambardella & Laura Magazzini & Fabio Pammolli, 2009. "A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development," Management Science, INFORMS, vol. 55(10), pages 1638-1653, October.
    5. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
    6. Mukhopadhyay, Samar K. & Ma, Huafan, 2009. "Joint procurement and production decisions in remanufacturing under quality and demand uncertainty," International Journal of Production Economics, Elsevier, vol. 120(1), pages 5-17, July.
    7. Charles H. Fine, 1986. "Quality Improvement and Learning in Productive Systems," Management Science, INFORMS, vol. 32(10), pages 1301-1315, October.
    8. Erwin Danneels, 2003. "Tight–loose coupling with customers: the enactment of customer orientation," Strategic Management Journal, Wiley Blackwell, vol. 24(6), pages 559-576, June.
    9. Mukhopadhyay, Samar K. & Setaputra, Robert, 2007. "A dynamic model for optimal design quality and return policies," European Journal of Operational Research, Elsevier, vol. 180(3), pages 1144-1154, August.
    10. Olivier Chatain & Peter Zemsky, 2007. "The Horizontal Scope of the Firm: Organizational Tradeoffs vs. Buyer-Supplier Relationships," Management Science, INFORMS, vol. 53(4), pages 550-565, April.
    11. Ivo Zander & Udo Zander, 2005. "The Inside Track: On the Important (But Neglected) Role of Customers in the Resource‐Based View of Strategy and Firm Growth," Journal of Management Studies, Wiley Blackwell, vol. 42(8), pages 1519-1548, December.
    12. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    13. Guangliang Ye & Richard L. Priem & Abdullah A. Alshwer, 2012. "Achieving Demand-Side Synergy from Strategic Diversification: How Combining Mundane Assets Can Leverage Consumer Utilities," Organization Science, INFORMS, vol. 23(1), pages 207-224, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Choi, Yoonho & Kwan Choi, E., 2018. "Quality competition in north-south trade," International Journal of Production Economics, Elsevier, vol. 201(C), pages 216-224.
    2. Ping Chen, 2023. "The Effect of Value Creation on Startups Performance in the Digital Environment: Evidence from Chinese Digital Startups," Sustainability, MDPI, vol. 15(5), pages 1-18, February.
    3. Bian, Junsong & Li, Kevin W. & Guo, Xiaolei, 2016. "A strategic analysis of incorporating CSR into managerial incentive design," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 86(C), pages 83-93.
    4. Li, Wei & Chen, Jing, 2018. "Backward integration strategy in a retailer Stackelberg supply chain," Omega, Elsevier, vol. 75(C), pages 118-130.
    5. Chen, Jen-Yi & Slotnick, Susan A., 2015. "Supply chain disclosure and ethical sourcing," International Journal of Production Economics, Elsevier, vol. 161(C), pages 17-30.
    6. Zhao, Dan & Chen, Hongmin & Hong, Xianpei & Liu, Jingfang, 2014. "Technology licensing contracts with network effects," International Journal of Production Economics, Elsevier, vol. 158(C), pages 136-144.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manral, Lalit & Harrigan, Kathryn R., 2018. "The logic of demand-side diversification: Evidence from the US telecommunications sector, 1990–1996," Journal of Business Research, Elsevier, vol. 85(C), pages 127-141.
    2. Vikas A. Aggarwal & Brian Wu, 2015. "Organizational Constraints to Adaptation: Intrafirm Asymmetry in the Locus of Coordination," Organization Science, INFORMS, vol. 26(1), pages 218-238, February.
    3. Guangliang Ye & Richard L. Priem & Abdullah A. Alshwer, 2012. "Achieving Demand-Side Synergy from Strategic Diversification: How Combining Mundane Assets Can Leverage Consumer Utilities," Organization Science, INFORMS, vol. 23(1), pages 207-224, February.
    4. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    5. Jens Schmidt & Richard Makadok & Thomas Keil, 2016. "Customer-specific synergies and market convergence," Strategic Management Journal, Wiley Blackwell, vol. 37(5), pages 870-895, May.
    6. De Giovanni, Pietro & Zaccour, Georges, 2023. "A survey of dynamic models of product quality," European Journal of Operational Research, Elsevier, vol. 307(3), pages 991-1007.
    7. Niloofar Abolfathi & Simone Santamaria & Charles Williams, 2022. "How Does Firm Scope Depend on Customer Switching Costs? Evidence from Mobile Telecommunications Markets," Management Science, INFORMS, vol. 68(1), pages 316-332, January.
    8. Paulson Gjerde, Kathy A. & Slotnick, Susan A., 2004. "Quality and reputation: The effects of external and internal factors over time," International Journal of Production Economics, Elsevier, vol. 89(1), pages 1-20, May.
    9. Shaheer, Noman Ahmed & Li, Sali, 2020. "The CAGE around cyberspace? How digital innovations internationalize in a virtual world," Journal of Business Venturing, Elsevier, vol. 35(1).
    10. Nathan H. Miller, 2008. "Competition When Consumers Value Firm Scope," EAG Discussions Papers 200807, Department of Justice, Antitrust Division.
    11. Esteve-Perez, Silviano, 2005. "Exit with vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 227-247, April.
    12. Xiao Zhang & Luqun Xie & Jiatao Li & Li Cheng, 2022. "“Outside in”: Global demand heterogeneity and dynamic capabilities of multinational enterprises," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(4), pages 709-722, June.
    13. Cagé, Julia, 2017. "Media Competition, Information Provision and Political Participation: Evidence from French Local Newspapers and Elections, 1944," CEPR Discussion Papers 12198, C.E.P.R. Discussion Papers.
    14. Julia Cagé, 2014. "Media Competition, Information Provision and Political Participation," SciencePo Working papers Main hal-03602440, HAL.
    15. Yi-Ling Cheng & Shin-Kun Peng, 2014. "Price competition and quality differentiation with multiproduct firms," Journal of Economics, Springer, vol. 112(3), pages 207-223, July.
    16. Jen-Te Yao, 2005. "Counterfeiting and an Optimal Monitoring Policy," European Journal of Law and Economics, Springer, vol. 19(1), pages 95-114, January.
    17. Ngo Van Long & Zhuang Miao, 2020. "Multiple‐quality Cournot oligopoly and the role of market size," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 932-952, October.
    18. Peter-J. Jost, 2023. "Price commitment and the strategic launch of a fighter brand," Quantitative Marketing and Economics (QME), Springer, vol. 21(3), pages 381-435, September.
    19. Bilgehan Uzunca & Bruno Cassiman, 2023. "Entry diversion: Deterrence by diverting submarket entry," Strategic Management Journal, Wiley Blackwell, vol. 44(1), pages 11-47, January.
    20. Luigi Filippini, 1999. "Leapfrogging in a Vertical Product Differentiation Model," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 245-256.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:145:y:2013:i:2:p:696-701. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.