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Ensuring Quality Provision through Capacity Regulation under Price Competition

Author

Listed:
  • Boccard Nicolas

    (University of Girona)

  • Wauthy Xavier Y.

    (Facultés Universitaires Saint-Louis and Université catholique de Louvain)

Abstract

We show in a simple duopoly model of vertical differentiation that when a welfare maximizing regulator wishes to ensure entry while avoiding strategic quality underprovision, regulating the incumbent's capacity is preferable to imposing a "Minimum Quality Standard" on products. In order to establish this result, we make an original contribution to the study of Bertrand-Edgeworth competition in a market with differentiated products.

Suggested Citation

  • Boccard Nicolas & Wauthy Xavier Y., 2010. "Ensuring Quality Provision through Capacity Regulation under Price Competition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-27, October.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:47
    DOI: 10.2202/1935-1704.1655
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    References listed on IDEAS

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    1. Nicolas Boccard & Xavier Wauthy, 2006. "Quality Choice, Sales Restriction And The Mode Of Competition," Manchester School, University of Manchester, vol. 74(1), pages 64-84, January.
    2. 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.
    3. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn.
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