Abstract
We investigate the effect of product excellence on firm profitability in a competitive market with vertical and horizontal differentiation. We develop a theoretical model and derive conditions under which the effect of excellence on profitability, the latter defined as the ratio of equilibrium profits to the invested capital, can be either positive, zero, or negative. We test our theoretical predictions by examining a sample of 1,052 Italian wineries over the period 2006-2015. Using different econometric methodologies, we find that excellence, proxied by firm reputation for quality, has no significant impact on profitability, measured by the return on invested capital (ROIC). We conclude by discussing policy and managerial implications.