Inside the white box: Unpacking the determinants of quality and vertical specialization

Esteban Jaimovich, Boryana Madzharova and Vincenzo Merella

European Economic Review, 2023, vol. 152, issue C

Abstract: This paper explores patterns of quality differentiation and specialization relying on model-level panel data of retail sales and prices of refrigerators across 23 countries in the European Union. Unlike customs data aggregated at the product category, typically used in the trade literature, model-level data allow us to test for the presence of nonhomotheticities by comparing market shares of identical models across different markets. We measure quality at the model level, account for varying willingness-to-pay for quality at different incomes, and link quality measures to objective model attributes. Using originally assembled data on the country of manufacture of each model, we study patterns of quality specialization by brands with plants in multiple countries. We find that firms locate the production of their higher-quality models in richer countries and argue that the home-market effect linked to nonhomothetic preferences is a key driver of such patterns of quality specialization.

Keywords: Inferred quality; Nonhomothetic CES; Home-market effect; Quality specialization (search for similar items in EconPapers)
JEL-codes: F1 F14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Inside the white box: Unpacking the determinants of quality and vertical specialization (2021)
Working Paper: Inside the White Box: Unpacking the Determinants of Quality and Vertical Specialization (2021)
Working Paper: Inside the White Box: Unpacking the Determinants of Quality and Vertical Specialization (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:152:y:2023:i:c:s001429212300003x

DOI: 10.1016/j.euroecorev.2023.104374

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