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Minimum quality standards and consumers’ information

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Author Info
Paolo G. GARELLA ()
Emmanuel PETRAKIS ()

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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

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Paper provided by Department of Economics University of Milan Italy in its series Departemental Working Papers with number 2007-12.

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Date of creation: 23 Apr 2007
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Handle: RePEc:mil:wpdepa:2007-12

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Related research
Keywords: Minimum Quality Standards; Imperfect Consumer Information; Oligopoly; Horizontal and Vertical Product Differentiation; Industry Regulation;

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Find related papers by JEL classification:
L0 - Industrial Organization - - General
L5 - Industrial Organization - - Regulation and Industrial Policy

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References listed on IDEAS
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.:
  1. Garella, Paolo G., 2006. ""Innocuous" minimum quality standards," Economics Letters, Elsevier, vol. 92(3), pages 368-374, September. [Downloadable!] (restricted)
    Other versions:
  2. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September. [Downloadable!] (restricted)
  3. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Blackwell Publishing, vol. 44(3), pages 345-53, September. [Downloadable!] (restricted)
    Other versions:
  4. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(4), pages 621-662, December. [Downloadable!] (restricted)
  5. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring. [Downloadable!] (restricted)
    Other versions:
  6. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August. [Downloadable!] (restricted)
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  7. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November. [Downloadable!] (restricted)
  8. 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. [Downloadable!]
  9. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Blackwell Publishing, vol. 48(3), pages 331-48, September. [Downloadable!] (restricted)
  10. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May. [Downloadable!] (restricted)
  11. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter. [Downloadable!] (restricted)
  12. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  13. Symeonidis, George, 2003. "Comparing Cournot and Bertrand equilibria in a differentiated duopoly with product R&D," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 39-55, January. [Downloadable!] (restricted)
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  14. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Blackwell Publishing, vol. 45(1), pages 101-13, March. [Downloadable!] (restricted)
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  15. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January. [Downloadable!] (restricted)
    Other versions:
  16. P. Garella, 2003. "The Effects of Minimum Quality Standards: Better or Worse Products?," Working Papers 484, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  17. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September. [Downloadable!] (restricted)
    Other versions:
  18. Chrysovalantou Milliou & Emmanuel Petrakis, 2004. "Business-to-business electronic marketplaces: Joining a public or creating a private," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 99-112. [Downloadable!]
  19. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  20. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Imperfect Competition and Quality Signaling," Working Papers 0520, Department of Economics, Vanderbilt University. [Downloadable!]
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  21. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March. [Downloadable!] (restricted)
  22. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December. [Downloadable!] (restricted)
  23. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Rouviere, Elodie & Soubeyran, Raphael, 2008. "Collective Reputation, Entry and Minimum Safety Standard," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44465, European Association of Agricultural Economists. [Downloadable!]
  2. Bonroy, O. & Lemarie, S., 2008. "Downstream labeling and upstream competition," Working Papers 200804, Grenoble Applied Economics Laboratory (GAEL). [Downloadable!]
  3. Stéphan Marette, 2007. "Minimum safety standard, consumers’ information and competition," Journal of Regulatory Economics, Springer, vol. 32(3), pages 259-285, December. [Downloadable!] (restricted)
  4. Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Private CSR Activities in Oligopolistic Markets: Is there any room for Regulation?," Working Papers 0816, University of Crete, Department of Economics. [Downloadable!]
  5. Olivier Bonroy & Christos Constantatos, 2008. "On the use of labels in credence goods markets," Journal of Regulatory Economics, Springer, vol. 33(3), pages 237-252, June. [Downloadable!] (restricted)
    Other versions:
  6. P. G. Garella & L. Lambertini, 2008. "Bidimensional quality competition and scope economies," Working Papers 653, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  7. Marette, Stéphan, 2007. "Minimum Safety Standard, Consumers’ Information, and Competition (The)," Staff General Research Papers 12718, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  8. stephan marette, 2008. "Standards and Labels," Economics Bulletin, Economics Bulletin, vol. 12(2), pages 1-7. [Downloadable!]
  9. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2006. "Corporate Social Responsibility in Oligopoly," Working Papers 0707, University of Crete, Department of Economics, revised 15 Jan 2007. [Downloadable!]
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