Product Quality and Market Size

Berry, Steven; Waldfogel, Joel

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Product Quality and Market Size

Yale Working Papers on Economic Applications and Policy Discussion Paper No. 1

37 Pages Posted: 5 Oct 2005

See all articles by Steven Berry

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

There are 2 versions of this paper

Date Written: November 2004

Abstract

Do larger markets offer better products? The question has implications both for theories of cities and for theories of market organization. We document that in the restaurant industry, where quality is produced largely with variable costs, the range of qualities on offer increases in market size, with each product maintaining a small market share. In daily newspapers, where quality is produced with fixed costs, the average quality of products increases with market size, but the market does not offer much additional variety as it grows large. These results are consistent with recent IO theories of endogenous product quality and are consistent with theories of cities that place an emphasis on the consumption advantages of cities.

Keywords: quality competition, newspapers, restaurants

JEL Classification: L11, L13, L82

Suggested Citation: Suggested Citation

Berry, Steven T. and Waldfogel, Joel, Product Quality and Market Size (November 2004). Yale Working Papers on Economic Applications and Policy Discussion Paper No. 1, Available at SSRN: https://ssrn.com/abstract=817111