Dilemma of Low Quality Competition Strategy and Its Way Out
|Keywords||vertical differentiation horizontal differentiation low quality competition|
The research of product differentiation has always been a hotspot in economics and management. It offered many valuable models and conclusions for explaining and guiding the real economic world. For a long time, our country follows the export-oriented economic development which based on cheap labor. Many kinds of product show great generality in the quality location—low quality competition strategy. This strategy enables some enterprises successfully enter a product market, but as the situation changes, this strategy is increasingly inapplicable. This article adopts mathematical derivation and case analysis method to extend the former model of vertical differentiation. We studied the quality competition under the assumption of fixed and the variable cost functions, explained low quality competition strategy’s disadvantages with theory: the market share and profits of low quality producer are far less than the high quality producer’s. Through the further analysis, we found that technology importation strategy made enterprise have access to some profit growth, but it can not be used as a general path for the low quality producer to gain more profit than the high quality producer. Second the timing of entering also influences their profit. We provide a case analysis regarding the development of China’s mobile phone industry to prove the rationality of the model conclusion. The end of the paper put forward some possible competition strategy which based on the conclusion, such as mixed differentiation strategy; enterprise alliance strategy; technology innovation and competition regarding the industrial chain.