Multi-product firms and product quality

Abstract

We examine the global operations of multi-product firms. We present a flexible heterogeneous-firm trade model with either limited or strong scope for quality differentiation. Using customs data for China during 2002-2006, we empirically establish that firms allocate activity across products in line with a product hierarchy based on quality. Firms vary output quality across their products by using inputs of different quality levels. Their core competence is in varieties of superior quality that command higher prices but nevertheless generate higher sales. In markets where they offer fewer products, firms concentrate on their core varieties by dropping low-quality peripheral goods on the extensive margin and by shifting sales towards top-quality products on the intensive margin. The product quality ladder also governs firms' export dynamics, both in general and in response to the exogenous removal of MFA quotas on textiles and apparel. Our results inform the drivers and measurement of firm performance, the effects of trade reforms, and the design of development policies.

One way to the top: How services boost the demand for goods

“…Mayer et al, 2014Mayer et al, , 2016 and/or quality differences across varieties (e.g. Manova and Yu, 2017). Despite the ample theoretical development in both directions, we argue here that these models alone cannot replicate our empirical results.…”

Productivity Revisited: Shifting Paradigms in Analysis and Policy

“…World Bank work by Cusolito, García, and Juvenal (2018) pursues this further with Chilean wines to permit closer examination of the relationship between TFPR, quality, price, and efficiency. Using quality rankings collected from the Wine Spectator and Descorchados magazines, 5 figure 2.2 shows that wine prices are correlated with high prices of materials in panel a and c. These higher prices of inputs could reflect less efficient sourcing, but may reflect better quality inputs and better skilled labor that permit producers to make higher-quality products-as found in previous studies for Colombia (Kugler and Verhoogen 2011), China (Manova and Zhang 2012), and Portugal (Bastos, Silva, and Verhoogen 2018). Furthermore, prices are also very clearly related to the quality ratings in panels b and d. The diverging unit values reflect not only differences in the ability to produce a vertically superior product, but also all that the superior characteristic implies with it-from design capacity, to different sets of inputs, to marketing and advertising ).…”

The South African manufacturing exporter story

“…Due to the dynamic nature of exporting, firms' product mix changes, as product characteristics and firm characteristics change (Görg et al 2008). For example, Manova and Zhang (2012) find that as firms become more able, they tend to focus on exporting higher quality (more expensive) products and dropping cheaper export products, as the former results in higher revenues. Product switching is a common occurrence in multi-product firms, even more so in large exporters than in smaller ones (Bernard et al 2006;Amador and Opromolla 2010).…”