Price and Quality Competition under Adverse Selection: Market Organization and Efficiency
AbstractFirms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices. Copyright 2003 by the RAND Corporation.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 34 (2003)
Issue (Month): 2 (Summer)
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Web page: http://www.rje.org
Other versions of this item:
- Gary Biglaiser & Ching-to Albert Ma, 2000. "Price and Quality Competition under Adverse Selection: Market Organization and Efficiency," Papers, Boston University - Industry Studies Programme 0102, Boston University - Industry Studies Programme.
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