Does Excellence Pay Off? Theory and Evidence from the Wine Market

Stefano Castriota () and Alessandro Fedele
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Stefano Castriota: University of Pisa, Department of Political Science

No BEMPS77, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: We investigate how product excellence impacts on firm profitability in a competitive market with vertical and horizontal differentiation. We develop a theoretical model and derive conditions under which the effect of excellence on profitability, the latter defined as the ratio of equilibrium profits to the invested capital, can be either positive, zero, or negative. We test our theoretical predictions by examining a sample of 1,052 Italian wineries over the period 2006-2015. Using different econometric methodologies, we find that excellence, proxied by firm reputation for quality, does not affect profitability, measured by the return on invested capital (ROIC). We conclude by discussing policy and managerial implications. (NOTE: This paper is a radically revised version of the paper "Does Excellence Pay Off? Evidence from the Wine Market", published in this series as BEMPS49)

Keywords: product excellence; firm profitability; vertical and horizontal differentiation; reputation for quality; wine market (search for similar items in EconPapers)
JEL-codes: D21 D22 L13 L14 L15 L66 Q1 (search for similar items in EconPapers)
Pages: [34 pages]
Date: 2021-02
New Economics Papers: this item is included in nep-agr, nep-bec and nep-com
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Working Paper: Does Excellence Pay Off? Theory and Evidence from the Wine Market (2021)
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