Quality and location choices under price regulation
AbstractIn a model of spatial competition, we analyse the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator and find that this (second-best) price causes over-investment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the cost of investing in product quality, or the transportation cost of consumers, is sufficiently high. Comparing with the case of price competition, we also identify a hitherto unnoticed benefit of regulation, namely improved locational efficiency.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 24/02.
Length: 22 pages
Date of creation: 15 Dec 2002
Date of revision:
Contact details of provider:
Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Web page: http://www.uib.no/econ/en
More information through EDIRC
Spatial competition; Product quality; Location; Price regulation.;
Other versions of this item:
- Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2006. "Quality and Location Choices under Price Regulation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 207-227, 03.
- Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-28, Social Science Research Center Berlin (WZB).
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
- R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asher Wolinsky, 1997.
"Regulation of Duopoly: Managed Competition vs Regulated Monopolies,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 6(4), pages 821-847, December.
- Asher Wolinsky, 1994. "Regulation of Duopoly: Managed Competition vs. Regulated Monopolies," Discussion Papers 1116, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979.
"On Hotelling's "Stability in Competition","
Econometric Society, vol. 47(5), pages 1145-50, September.
- Anderson, Simon P & Engers, Maxim, 1994. "Spatial Competition with Price-Taking Firms," Economica, London School of Economics and Political Science, vol. 61(242), pages 125-36, May.
- Ching-to Albert Ma & James F. Burgess Jr., 1992.
"Quality Competition, Welfare, and Regulation,"
0024, Boston University - Industry Studies Programme.
- Nuscheler, Robert, 2002.
"Physician reimbursement, time-consistency and the quality of care,"
Discussion Papers, Research Unit: Market Processes and Governance
FS IV 02-16, Social Science Research Center Berlin (WZB).
- Robert Nuscheler, 2003. "Physician Reimbursement, Time-Consistency and the Quality of Care," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 302-, June.
- Hugh Gravelle & Giuliano Masiero, .
"Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice,"
00/18, Department of Economics, University of York.
- Gravelle, Hugh & Masiero, Giuliano, 2000. "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Journal of Health Economics, Elsevier, vol. 19(6), pages 1067-1088, November.
- Jeroen Hinloopen, 2002. "Price regulation in a spatial duopoly with possible non-buyers," The Annals of Regional Science, Springer, vol. 36(1), pages 19-39.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kjell Erik Lommerud).
If references are entirely missing, you can add them using this form.