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 InfoPaper provided by Boston University - Industry Studies Programme in its series Papers with number 0102.
Date of creation: May 2000
Date of revision:
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Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
Web page: http://www.bu.edu/econ/isp/
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- Biglaiser, Gary & Ma, Ching-to Albert, 2003. " Price and Quality Competition under Adverse Selection: Market Organization and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 266-86, Summer.
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- William Jack(Georgetown University), 2004. "Optimal risk adjustment in a model with adverse selection and spatial competition," Working Papers gueconwpa~04-04-15, Georgetown University, Department of Economics.
- Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.
- Jack, William, 2006. "Optimal risk adjustment with adverse selection and spatial competition," Journal of Health Economics, Elsevier, vol. 25(5), pages 908-926, September.
- Olivella, Pau & Vera-Hernandez, Marcos, 2007. "Competition among differentiated health plans under adverse selection," Journal of Health Economics, Elsevier, vol. 26(2), pages 233-250, March.
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