Quality as a Dimension of Competition in the Fluid Milk Industry

Abstract

EVEN though conventional economic theory has historically emphasized price competition and price output analysis, competition is now generally viewed as a joint resultant of product,' price and promotion. It is also consistent with our normative ideas about market performance that physical product quality should be an important aspect of the product dimension of competition. However, the importance and implications of physical product quality as a dimension of competition may vary tremendously among industries. In the fluid milk industry, physical product quality has traditionally been emphasized as an important competitive element. This is especially true for the distribution of fluid milk through retail food stores where the prices and services offered to consumers are often identical among brands. It is this segment of the industry that is given particular attention in this paper. Economic theory indicates that the intensity of product quality competition in the fluid milk industry, in spite of its traditional emphasis, should be limited. Limiting factors include the lack of natural opportunities for quality competition because of the relatively invisible nature of milk quality and the magnitude of institutional arrangements, as health department regulations, which place restrictions on the use of any natural opportunities that might exist. As a result, the primary opportunity for physical quality variability in the industry would seem to be in the area of vertical quality differences as contrasted to horizontal and/or innovational differences.2 That is, any physical quality differences among fluid milk brands would likely be caused by differences in quality attributes which are capable of objective measurement and laboratory testing. Examples of these attributes include keeping quality and specific nutrient content. Abbott, however, suggests that horizontal and innovational differences, not vertical differences, offer the greatest possibilities for in-