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

Esteban Jaimovich, Boryana Madzharova and Vincenzo Merella
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Esteban Jaimovich: University of Turin (ESOMAS Department) and Collegio Carlo Alberto
Boryana Madzharova: Central Bank of Ireland, Friedrich-Alexander-Universität Erlangen-Nürnberg, and CESIfo
Vincenzo Merella: University of Cagliari and Prague University of Economics and Busines

No 18/RT/25, Research Technical Papers from Central Bank of Ireland

Abstract: The paper investigates firms’ rollout strategies for quality-differentiated products across geographically dispersed markets. Using a theoretical framework that integrates nonhomothetic preferences, we show that premium goods are more likely to enter wealthier markets first, allowing firms to capture higher markups. We find that the main factors influencing the selection of follow-up markets differ by product quality: for premium goods, income levels are the primary determinant of expansion paths, whereas geographic proximity is the main driver for lower-quality products. Using micro-level data from the refrigeration industry, we confirm a significant positive association between market-entry order and income for higherquality products. Furthermore, we observe that follow-up markets tend to be geographically more dispersed for premium goods, reflecting a shift away from proximity-based expansion strategies.

Keywords: market entry, gravity; nonhomothetic preferences, quality differentiated products. (search for similar items in EconPapers)
JEL-codes: F1 F14 F23 L68 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-eur, nep-iaf and nep-ind
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