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A Dynamic Perspective on Minimum Quality Standards under Cournot Competition

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  • Stefan Napel
  • Gunnar Oldehaver

Abstract

Imposing a minimum quality standard (MQS) is conventionally regarded as harmful if firms compete in quantities. This, however, ignores its possible dynamic effects. We show that an MQS can hinder collusion, resulting in dynamic welfare gains that reduce and may outweigh the static losses which are caused by regulation's distortive effect on equilibrium qualities. Verdicts on MQS thus depend even more on the market structure at hand than has been acknowledged.

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File URL: http://www.bgpe.de/texte/DP/082_napel.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 082.

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Length: 35 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:bav:wpaper:082_napel

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Related research

Keywords: Minimal quality standard; Cournot competition; collusion;

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References

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  1. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September.
  2. Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Universite de Montreal, Departement de sciences economiques.
  3. Jehiel, Philippe, 1992. "Product differentiation and price collusion," International Journal of Industrial Organization, Elsevier, vol. 10(4), pages 633-641, December.
  4. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
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  6. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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  8. Eales James & Binkley James K, 2003. "Vertical Product Differentiation in Theory and Practice," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-18, September.
  9. Min Chen & Konstantinos Serfes, 2012. "Minimum quality standard regulation under imperfect quality observability," Journal of Regulatory Economics, Springer, vol. 41(2), pages 269-291, April.
  10. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  11. Paolo Garella, 2006. ""Innocuous" Minimum Quality Standards," Working Papers 0606, University of Crete, Department of Economics.
  12. Naoto Jinji & Tsuyoshi Toshimitsu, 2004. "Minimum Quality Standards under Asymmetric Duopoly with Endogenous Quality Ordering: A Note," Journal of Regulatory Economics, Springer, vol. 26(2), pages 189-199, 09.
  13. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-48, September.
  14. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November.
  15. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
  16. Giulio Ecchia & Luca Lambertini, 1995. "Minimum Quality Standards and Collusion," Working Papers 235, Dipartimento Scienze Economiche, Universita' di Bologna.
  17. Tom Ross, 1990. "Cartel Stability And Product Differentiation," Carleton Industrial Organization Research Unit (CIORU) 90-04, Carleton University, Department of Economics.
  18. Constantatos, Christos & Perrakis, Stylianos, 1998. "Minimum Quality Standards, Entry, and the Timing of the Quality Decision," Journal of Regulatory Economics, Springer, vol. 13(1), pages 47-58, January.
  19. Argenton, Cédric, 2005. "Producers bargaining over a quality standard," Working Paper Series in Economics and Finance 618, Stockholm School of Economics, revised 18 Jan 2006.
  20. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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Cited by:
  1. Rockett, Katharine, 2012. "Perspectives on the knowledge-based society: An introduction to the special issue," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(35), pages =1-22.
  2. Min Chen & Konstantinos Serfes, 2012. "Minimum quality standard regulation under imperfect quality observability," Journal of Regulatory Economics, Springer, vol. 41(2), pages 269-291, April.

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