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Minimum Quality Standards and Collusion

Author

Listed:
  • Giulio Ecchia
  • Luca Lambertini

Abstract

We model the introduction of a minimum quality standard in a vertically differentiated duopoly. We extend the literature by determining the standard endogenously, showing that the maximisation of social welfare entails an increase in the surplus accruing to consumers served by the low quality firm and a decrease in the surplus of the remaining consumers. Then, we consider the effects of the standard on the stability of price collusion, proving that the standard makes it more difficult for firms to collude if consumers are sufficiently rich.

Suggested Citation

  • Giulio Ecchia & Luca Lambertini, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-113, March.
  • Handle: RePEc:bla:jindec:v:45:y:1997:i:1:p:101-113
    DOI: 10.1111/1467-6451.00037
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    References listed on IDEAS

    as
    1. David Besanko & Shabtai Donnenfeld & Lawrence J. White, 1987. "Monopoly and Quality Distortion: Effects and Remedies," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 743-767.
    2. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-429, June.
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