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Does a Minimum Quality Standard Always Reduce the Price of High Quality Products?

Listed author(s):
  • Panzar John C

    ()

    (University of Auckland)

  • Savage Ian

    ()

    (Northwestern University)

Registered author(s):

    This paper investigates the standard finding that instituting a minimum quality standard within a vertically differentiated market unambiguously benefits consumers of high quality products. A competitive model is specified in which random cost shocks lead some firms to cheat in equilibrium on their reputation for high quality. When cheating occurs, instituting or raising the level of a minimum standard can lead to the price of high quality products either increasing or decreasing. The effect of a minimum quality standard on the price of high quality products becomes an empirical rather than a theoretical issue.

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    File URL: https://www.degruyter.com/view/j/bejeap.2011.11.issue-1/bejeap.2011.11.1.2333/bejeap.2011.11.1.2333.xml?format=INT
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    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 11 (2011)
    Issue (Month): 1 (June)
    Pages: 1-32

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    Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:39
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    1. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
    3. Ginger Zhe Jin & Andrew Kato, 2006. "Price, quality, and reputation: evidence from an online field experiment," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 983-1005, December.
    4. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    5. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    6. George J. Mailath & Larry Samuelson, 2001. "Who Wants a Good Reputation?," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 415-441.
    7. repec:rje:randje:v:37:y:2006:i:4:p:983-1005 is not listed on IDEAS
    8. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-267, February.
    9. Douglas Gale & Robert W. Rosenthal, 1994. "Price and Quality Cycles for Experience Goods," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 590-607, Winter.
    10. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
    11. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 409-451.
    12. William P. Rogerson, 1983. "Reputation and Product Quality," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 508-516, Autumn.
    13. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
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