Strategic quality decisions under heterogeneous resource endowments

Theoretical literature in marketing and economics advocates a product differentiation strategy assuming firm homogeneity in resource endowments. Alternatively, strategic management literature argues for a firm's unique strategic resources as a source of competitive advantage. Under imperfect mobility of resources across firms, superior resource endowments lead to a higher productive efficiency and provide sustainable cost advantages which allow an aggressive market share strategy. A major criticism of this view is, however, that it does not take into account the critical role of product positioning in the attainment of a competitive advantage. Bridging these two perspectives, we attempt to explain under what conditions firms employ either a differentiation strategy for increasing market power or an aggressive market share stretegy using fierce price competition. Specifically, we not only assume that consumers differ in their willingness to pay for product quality, but also that firms differ in their resource endowments within a strategic planning period. Given the consumer and firm heterogeneities, we examine firms' strategic quality decisions under price competition. We present various optimal positioning and pricing strategies under differing market conditions and resource endowments