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 advantage, leading to increased returns but a reduction in variance in returns. More specifically, based on our analyses of strategy-related theories, we propose a model in which a positive relationship is predicted between relative product quality and relative market share and between relative product quality and returns. An inverse association is predicted between quality and both systematic variance and unexplained variance in returns. Finally, relative 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 stipulations. Copyright (C) 1999 John Wiley & Sons, Ltd.