Simultaneous Pricing and Quality Decisions for Seasonally Produced Perishable Products in a Heterogeneous Market

Abstract

This paper analyzes the problem of joint quality and quantity management under competition for a deteriorating perishable product that is seasonally produced but has demand throughout the year. Each firm makes the quality choice, which is a tactical decision, and undertakes production and stocking decisions at the beginning of a two-period selling horizon, with the complete knowledge of the qualities already chosen. The equilibrium quality and quantity decisions of the firms are discussed, and the impact of the firms' cost structures on their decisions is analyzed. The firms have to perform the optimal trade-off among the cost of quality, the production costs, and the disparity in the quality levels that the firms can choose in order to maximize their profits. Later, we also show that the presence of competition does not always improve market quality.