High-Quality Entry and Incumbent Product Quality: Experimental Evidence from Kenya

Speaker: A/Prof Emilia Tjernström

Affiliation: Macquarie University

Location: Room 212, Goddard Building (#08), St Lucia Campus

Zoom: https://uqz.zoom.us/j/82603079317

Abstract: How does competition affect product quality, and for which customers? When buyers cannot observe quality, competition can raise or lower average quality, and it can improve quality for some customers while worsening it for others. We randomized when a high-quality agricultural-input retailer would open shops in 100 rural Kenyan markets, scheduling half ("early" markets) a season ahead of the rest ("late" markets). Covert shoppers bought maize seed and fertilizer from existing dealers as two customer types: some asked for the cheapest product, and others asked for the dealer's recommendation. A laboratory then tested whether each purchase met national quality standards. Competition improved the cheapest seed: within a kilometer of a planned shop, cheapest seed in early markets was 26 percent more likely to meet the standard than in late markets. We do not detect quality impacts on dealer-recommended seed or on fertilizer. The gain seems to come from better quality within the same products, not from a change in which products dealers sold. In this market, the benefits from competition primarily reached price-sensitive consumers.