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When better quality or higher goodwill can result in lower product price: A dynamic analysis

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  • Jian Ni
  • Shoude Li

Abstract

This article analyses the price-quality and price-goodwill relationships under the influence of quality on goodwill through the effects of cost, sales, and mark-up. We identify the conditions under which a negative price-quality or price-goodwill relationship will arise, that is, price falls as quality or goodwill increases over time. We show that the price-quality or price-goodwill relationship could be negative even if the demand function is linearly additive, and this relationship will tend to be positive when the customer demand becomes more sensitive to the product quality.

Suggested Citation

  • Jian Ni & Shoude Li, 2019. "When better quality or higher goodwill can result in lower product price: A dynamic analysis," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(5), pages 726-736, May.
    • Handle: RePEc:taf:tjorxx:v:70:y:2019:i:5:p:726-736
    DOI: 10.1080/01605682.2018.1452535
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    Cited by:

    1. 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.
    2. Chenavaz, Régis Y. & Eynan, Amit, 2021. "Advertising, goodwill, and the Veblen effect," European Journal of Operational Research, Elsevier, vol. 289(2), pages 676-682.
    3. Chenavaz, Régis Y. & Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M., 2020. "Modeling the impact of product quality on dynamic pricing and advertising policies," European Journal of Operational Research, Elsevier, vol. 284(3), pages 990-1001.
    4. Anton, Ramona & Chenavaz, Régis Y. & Paraschiv, Corina, 2023. "Dynamic pricing, reference price, and price-quality relationship," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    5. Fan Zhang & Susu Cheng, 2021. "Behavioral choices in a dynamic duopoly with process innovation and sticky price: Myopia versus farsightedness," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 662-674, April.
    6. Balázs Szabó & Sándor Danka, 2022. "State aid and the learning‐by‐doing effect on product pricing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 228-240, January.

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