Advanced Search
MyIDEAS: Login to save this paper or follow this series

Quality and location choices under price regulation

Contents:

Author Info

  • Brekke, Kurt R.
  • Nuscheler, Robert
  • Straume, Odd Rune

Abstract

In 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. By comparing the case of price competition, we also identify a hitherto unnoticed benefit of regulation, namely improved locational efficiency. -- In einem räumlichen Wettbewerbsmodell untersuchen wir die Gleichgewichte, die sich bei exogen gegebenem Preis einstellen. In einem erweiterten Hotelling Modell unterstellen wir, dass die Firmen den Standort (Produktdifferenzierung) und die Qualität ihres Produktes wählen. Wir ermitteln den, aus der Sicht eines sozialen Planers, optimalen Preis. Es zeigt sich, dass dieser (zweitbeste) Preis im Vergleich zum effizienten Ergebnis zu einer Überinvestition in Qualität und zu einer unzureichenden Produktdifferenzierung führt, wenn die Qualitätskosten der Firmen oder die Transportkosten der Konsumenten hinreichend groß sind. Ein Vergleich mit dem Marktergebnis bei Preiswettbewerb offenbart einen bisher unbeachteten positiven Effekt der Preisregulierung, den verbesserten Grad der Produktdifferenzierung.

Download Info

If 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.
File URL: http://econstor.eu/bitstream/10419/51092/1/36354321X.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number FS IV 02-28.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:zbw:wzbmpg:fsiv0228

Contact details of provider:
Postal: Reichpietschufer 50, 10785 Berlin
Phone: +49 (0)30 25491-402
Fax: +49 (0)30 25491-400
Email:
Web page: http://www.wzb.eu/
More information through EDIRC

Related research

Keywords: Spatial competition; product quality; location; price regulation;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. 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.
  2. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  3. 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).
  4. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  5. 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.
  6. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  7. 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.
  8. Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
  9. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:wzbmpg:fsiv0228. See general 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: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.