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

Stefano Castriota and Alessandro Fedele

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: We investigate the effect of product excellence on firm profiability in a competitive market with vertical and horizontal di¤erentiation. We develop a theoretical model and derive conditions under which the e¤ect of excellence on prontability, 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 di¤erent econometric methodologies, we find that excellence, proxied by firm reputation for quality, has no significant impact on profitability, measured by the return on invested capital (ROIC).We conclude by discussing policy and managerial implications.

Keywords: product excellence, firm prontability; vertical and horizontal di¤erentiation; 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)
Date: 2021-02-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-eur
Note: ISSN 2039-1854
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Working Paper: Does Excellence Pay Off? Theory and Evidence from the Wine Market (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2021/268

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