@techreport{NBERw6580,
 title = "A New Model of Quality",
 author = "Kala Krishna and Tor Winston",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "6580",
 year = "1998",
 month = "May",
 URL = "http://www.nber.org/papers/w6580",
 abstract = {We develop a new model of quality to capture the idea that even if a customer chooses to purchase a product, it may fail to deliver.'   In this event, the customer may wish to choose some other product.  We model this as a two stage game where firms first choose quality and then price. We find that in equilibrium, the high quality firm (the one with a higher probability of being able to  deliver') will always make higher profits than the low quality one even if costs of quality are sharply increasing.  Our work thus provides a reason for high quality niches to be inherently more profitable.  The implications for welfare and equilibrium under free entry are also studied.},
}