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Public regulatory intervention in consumer-friendly firms

Author

Listed:
  • Vitor Miguel Ribeiro

    (Vitor Miguel Ribeiro - FEP - Vitor Miguel de Sousa Ribeiro)

Abstract

We study a duopoly with differentiated and substitutable goods composed of one consumer-friendly firm and one pure-profit maximizing firm. In such a duopoly, a regulatory authority intervenes to control the degree of altruism of the consumer-friendly firm. We conclude that under quantity competition, if firms sell goods that are too homogeneous the policymaker should impose a ceiling on the level of benevolence of the consumer-friendly firm. However, under price competition, the policymaker never imposes a ceiling on the level of kindness of the consumer-friendly firm. Our results also show that, whatever the degree of product differentiation, the social welfare under price competition is always higher than the social welfare under quantity competition, which restores the arguments pointed out by the traditional literature and constitutes a sharp contrast with Nakamura (2013).

Suggested Citation

  • Vitor Miguel Ribeiro, 2014. "Public regulatory intervention in consumer-friendly firms," FEP Working Papers 548, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:548
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    File URL: http://www.fep.up.pt/investigacao/workingpapers/wp548.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Consumer-Friendly Firm; Product Differentiation; Public Intervention;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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