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Spreading the Good Apples Out: Market Entry Dynamics of Quality-Differentiated Products

Author

Listed:
  • Esteban Jaimovich
  • Boryana Madzharova
  • Vincenzo Merella

Abstract

This paper examines firms’ market entry strategies for quality-differentiated goods, focusing on both initial and subsequent product-level entry decisions. Using a theoretical framework incorporating nonhomothetic preferences, we show that premium products are more likely to enter wealthier markets earlier, where producers can capture higher mark-ups. Furthermore, the determinants of follow-up market selection differ by product quality: for premium products, income plays a dominant role in shaping expansion paths, whereas geographic proximity remains the primary driver for low-quality products. Empirically, we test these predictions using micro-level data from the refrigeration industry. Our results confirm a strong positive relationship between market order of entry and income, with this effect being particularly pronounced for high-quality products. Additionally, we observe that, as product quality increases, follow-up markets tend to be geographically more dispersed relative to earlier markets.

Suggested Citation

  • Esteban Jaimovich & Boryana Madzharova & Vincenzo Merella, 2024. "Spreading the Good Apples Out: Market Entry Dynamics of Quality-Differentiated Products," CESifo Working Paper Series 11529, CESifo.
    • Handle: RePEc:ces:ceswps:_11529
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    References listed on IDEAS

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    More about this item

    Keywords

    market entry; gravity; nonhomothetic preferences; quality-differentiated products;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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