*We thank seminar participants at Carnegie Mellon, MIT, the NBER, Virginia and Yale, as well as an Editor at this journal, for useful comments.
PRODUCT QUALITY AND MARKET SIZE*
Article first published online: 1 MAR 2010
© 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 58, Issue 1, pages 1–31, March 2010
How to Cite
BERRY, S. and WALDFOGEL, J. (2010), PRODUCT QUALITY AND MARKET SIZE. The Journal of Industrial Economics, 58: 1–31. doi: 10.1111/j.1467-6451.2010.00404.x
- Issue published online: 1 MAR 2010
- Article first published online: 1 MAR 2010
Do larger markets offer better products? The question has implications for theories of cities and theories of market organization. We document that in the restaurant industry, where quality is produced largely with variable costs, the range of qualities on offer increases in market size. In daily newspapers, where quality is produced with fixed costs, the average quality of products increases with market size, but the market does not offer much additional variety as it grows large. These results are consistent with IO theories of endogenous product quality and with theories that emphasize the consumption advantages of cities.