Traditional, single time‐period models of quality cost expenditures assume static conditions and ignore the impact of the learning curve effect on a firm’s product quality, and that of quality improvement efforts by the competitors. In this paper we incorporate both factors in a dynamic model of quality cost expenditures. The interactions not only show how firms can remain competitive, but also how they can achieve a competitive advantage. In addition, the dynamic model shows that quality learning will always lead to fewer product defects, but that total quality cost on a per unit basis will vary according to the interaction of these two factors. This model should also help managers plan, evaluate, and justify voluntary quality cost expenditures.
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