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کیفیت درونی
While the intrinsic quality of goods in the economy moves along a quality ladder only through innovation, firms use advertising to influence the perception that consumers have of these goods.
The first component is referred to as the intrinsic quality of the product, denoted by qjt > 0, and it stands for the currently leading-edge technological efficiency of the product.
However, we also allow for a degree of complementarity coming from the fact that fjt is itself an increasing function of intrinsic quality, qj .
Namely, advertising is effective in raising perceived quality only if the good has nonzero intrinsic quality, and it is more effective the higher the intrinsic quality of the good.
A firm owns a product if it can produce it at a higher intrinsic quality than any other firm.
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