The manufacturing–marketing conflict under vertical product differentiation

This paper investigates the impact of manufacturing–marketing conflict in a vertically differentiated market where consumers differ in their willingness to pay. We model the competition between duopoly firms in quality and quantity dimensions. When the manufacturing and marketing managers within a firm cannot be perfectly coordinated, they bargain with each other to arrive at a compromise solution regarding quality and quantity decisions. We find that compared to the perfectly coordinated scenario, the high‐end firm is always worse off in the compromise scenario while the low‐end firm may benefit from this conflict by closing the quality gap with the high‐end firm.