Ensuring Quality Provision through Capacity Regulation under Price Competition
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.
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Volume (Year): 10 (2010)
Issue (Month): 1 (October)
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