Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311602 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 2024-03
Publisher: 
Prague University of Economics and Business, Faculty of International Relations (FIR), Prague
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.
Subjects: 
Market entry
Gravity
Nonhomothetic preferences
Quality-differentiated products
JEL: 
F1
F14
F23
L68
Document Type: 
Working Paper

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