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

Esteban Jaimovich, Boryana Madzharova and Vincenzo Merella

No 11529, CESifo Working Paper Series from CESifo

Abstract: This paper examines firms’ market entry strategies for quality-differentiated goods, focusing on both initial and subsequent product-level entry decisions. Using a theoretical framework incorporating nonhomothetic preferences, we show that premium products are more likely to enter wealthier markets earlier, where producers can capture higher mark-ups. Furthermore, the determinants of follow-up market selection differ by product quality: for premium products, income plays a dominant role in shaping expansion paths, whereas geographic proximity remains the primary driver for low-quality products. Empirically, we test these predictions using micro-level data from the refrigeration industry. Our results confirm a strong positive relationship between market order of entry and income, with this effect being particularly pronounced for high-quality products. Additionally, we observe that, as product quality increases, follow-up markets tend to be geographically more dispersed relative to earlier markets.

Keywords: market entry; gravity; nonhomothetic preferences; quality-differentiated products (search for similar items in EconPapers)
JEL-codes: F10 F14 F23 L68 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-com and nep-ind
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