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Minimum quality standards and consumers’ information

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  • Paolo G. GARELLA
  • Emmanuel PETRAKIS

Abstract

The literature so far has analyzed the effects of Minimum Quality Standards (MQS) in oligopoly, using models of pure vertical differentiation, with only two firms, and perfect information. We consider products that are differentiated horizontally and vertically, with imperfect consumers' information, and more than two firms. We show that a MQS changes the consumers' perception of produced qualities. This increases the firms' returns from quality enhancing investments, notwithstanding contrary strategic effects. Our analysis justifies the use of MQS in industries where consumers cannot precisely ascertain the quality of goods, for instance pharmaceuticals or products with chemical components involved

Suggested Citation

  • Paolo G. GARELLA & Emmanuel PETRAKIS, 2007. "Minimum quality standards and consumers’ information," Departmental Working Papers 2007-12, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2007-12
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Minimum Quality Standards; Imperfect Consumer Information; Oligopoly; Horizontal and Vertical Product Differentiation; Industry Regulation;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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