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Quality Leadership when Regulatory Standards are Forthcoming

Author

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  • Stefan Lutz
  • Thomas P. Lyon
  • John W. Maxwell

Abstract

In many markets, governments set minimum quality standards while some sellers compete on the basis of quality by exceeding them. Such quality leadership strategies often win public acclaim, especially when they involve environmental attributes. Using a duopoly model of vertical product differentiation, we show that if the high‐quality firm can commit to a quality level before regulations are promulgated, it induces the regulator to weaken standards, and welfare falls. Our results raise doubts about the social benefits of corporate self‐regulation, and highlight the dangers of lengthy delays between legislative mandates for new regulations and their implementation.

Suggested Citation

  • Stefan Lutz & Thomas P. Lyon & John W. Maxwell, 2000. "Quality Leadership when Regulatory Standards are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
  • Handle: RePEc:bla:jindec:v:48:y:2000:i:3:p:331-348
    DOI: 10.1111/1467-6451.00126
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    Cited by:

    1. Nathaniel O. Keohane & Erin T. Mansur & Andrey Voynov, 2009. "Averting Regulatory Enforcement: Evidence from New Source Review," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 75-104, March.
    2. Aurora García‐Gallego & Nikolaos Georgantzís, 2009. "Market Effects of Changes in Consumers' Social Responsibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 235-262, March.
    3. Andrea Marchini & Chiara Riganelli & Francesco Diotallevi & Bianca Polenzani, 2021. "Label information and consumer behaviour: evidence on drinking milk sector," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 9(1), pages 1-24, December.
    4. Pei‐Cheng Liao, 2008. "A Note On Market Coverage In Vertical Differentiation Models With Fixed Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 60(1), pages 27-44, January.

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