Only in a non-competitive market

Cutlass says: In competitive markets a company that builds products that break down in couple of years goes out of business.

The thing is that a non-competitive market will restrict output and quality the most. While a perfectly competitive (which is a theoretical concept which cannot happen in the real world) market will not restrict output or quality at all.

Since we've been using the auto industry for an example, I'll continuewith that: From the end of WWII until circa ~1980s 3 companiesdominated the North American, and substantially the world, autoindustry. They were not the only companies in the market, but theyaccounted for most of it. This was a era of rapid changes in technologyand design. However, those 3 companies came to only "compete" amongsteach other, and their products became substantially similar, withsteadily rising prices and poor quality controls. In fact, back in theday every year one of them would announce the rate at which is wasraising its prices, and the others would follow suit. This also allowedthem to give pretty much the same labor contracts without hardbargaining, because they could just pass the costs on to the consumer.

Around 1980 there were 3 US automakers left. Volkswagen, Mercedes, andother European automakers were bit players in the North Americanmarket. Then the Japanese arrived. The earliest Japanese entries intothe market were not good cars. However, they filled a niche in theAmerican market that the American companies, even after 2 oil shocks,were ignoring. Those Japanese companies took their profits from thosesales and reinvested heavily in improving their cars. And immediatelyit was obvious that they were filling a demand by the consumer that theUS non-competitive companies had failed to fill. The Japanese companiessteadily eroded the market share and profits of the Big 3. At one pointin time, Ross Perot was the single biggest stockholder at GeneralMotors. He saw the handwriting on the wall and made a concerted effortto get GM to change to reflect the new market reality. He failed, andGM bought out his shares.

The market shares continued to go away from the US companies to the Japanese companies.

Around 1990 Japan changed a law which had restricted how large carsbuilt in that country can be. Suddenly the Japanese automakers couldcompete in the full range of the US market. At the same time,protectionist measures by the US government in response to the Japanesethreat encouraged the Japanese automakers to build factories in the US.If you happen to live in the US, take a look at the windshields ofcars, at the lowest part on the left side you can see the vehicleidentification number. If the first character on that string of lettersand numbers is a number, the car was built in North America. If it wasbuilt in Japan it will be a J. You won't see a lot of Js on theJapanese brand cars.

By the 1990s it was clear to all the auto industry publications thatthe Japanese cars were simply put, better, than the US cars. Thisbecame firmly embedded in the mindset of the US consumer. And the USautomakers loss of market share continued. What's more, having 5+Japanese automakers aggressively competing for the North Americanmarket share also restrained price increases. So even though the Frenchand Italian automakers had ceased to try to compete in North America inthe 80s (their cars at the time sucked even more than American cars),the whole market was much more competitive and cars just kept gettingbetter and better.

Now 2 of the Big 3 are in bankruptcy. They'll probably survive. And FIAT will get back into the US market.

In other words, it took half a century, but the market disciplined theUS automakers through competition. The US brand cars are vastly betterthan they were in the 80s, and are competitive on quality with carsbuilt elsewhere again.

Theige adds: Superior quality productssell at a premium precisely because they are more valued. The moredeveloped and competitive an economy becomes, the higher qualityproducts become in general, because that is what people demand. Peopledon't like throwing away their money on something that will break downquickly and have to be replaced over and over again.

I bought my phone for $150, I've dropped it several hundred times and it works completely fine. I would say, in general, cell phones are becoming of higher quality, because people don't like phones that constantly break.

There are cars that are of tremendous quality, and sell for $2 milliondollars. Not many people want to buy those cars, but they are out there.