The contribution of product quality to competitive advantage: Impacts on systematic variance and unexplained variance in returns

In our study, we argue that product quality may enhance competitive advanta ge, leading to increased returns but a reduction in variance in returns. Mo re specifically, based on our analyses of strategy-related theories, we pro pose a model in which a positive relationship is predicted between relative product quality and relative market share and between relative product qua lity and returns. An inverse association is predicted between quality and b oth systematic variance and unexplained variance in returns. Finally, relat ive product quality is expected to indirectly lower the variance in returns but enhance returns through the link between product quality, market share , and direct costs. Our findings are generally supportive of the model's st ipulations. Copyright (C) 1999 John Wiley & Sons, Ltd.