Quality, value, satisfaction, trust, a

(that is in the larger, between-tier context). However, there is no assumption made regarding the price-
quality association in the local or within tier context. This is consistent with available empirical evidence
in the literature (e.g., Sivakumar and Raj 1997).
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Figure 1 about here
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In the base condition, the tradeoff in choosing H can be written a/b; that is, the consumer gets a
quality advantage of ‘a’ for paying a price differential of ‘b’. Because the tradeoff is described in terms of
quality differential per unit price differential, it is easy to see that increases in tradeoff help H and
decreases in tradeoff hurt H (alternatively help L). For example, when the quality of H increase, the
quality differential increases and hence, the numerator increases which benefits H. Note that because we
are considering a two-brand market, H’s gain is L’s loss and vice versa. That is, whether we start with the
premise that the tradeoff as expressed here helps H or hurts L, the conclusions will be identical. As the
purpose is to demonstrate the intuitive value of the tradeoff concept, the discussion in this section is
limited to two brands. The subsequent sections examine a number of multi-brand market configurations.
When H reduces price by x, the price differential reduces to (b - x) and therefore the tradeoff
increases to a/(b - x). In contrast, when L reduces price by x, the price differential increases to (b + x) and
the tradeoff decreases to a/(b + x). Also note that the research stream on quality tier competition is
predicated upon the existence of distinct tiers. Therefore, it is reasonable to assume that x < b because if it
is not, then the price of H will become less than the price of L. As the quality of H is more than that of L,
the choice set is completely dominated by H and therefore not applicable in our context. Alternatively, if
b is very small, there is no need to consider H and L as two different tiers but they can be considered
similar to each other. Therefore, in all subsequent discussions, x is assumed to be less than b, which is
reasonable for the context of our discussion.
Based on the above discussion, the tradeoff in the base case is a/b, the tradeoff when H reduces
price is a/(b - x), and the tradeoff when L reduces price is a/(b + x). Hence, the increase in tradeoff when
H reduces price (in comparison with the base case) can be written as ∆H = a/(b - x) - a/b = ax/b(b - x). The
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