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Ensuring Quality Provision through Capacity Regulation under Price Competition

Listed author(s):
  • Boccard Nicolas

    ()

    (University of Girona)

  • Wauthy Xavier Y.

    ()

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

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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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 10 (2010)
Issue (Month): 1 (October)
Pages: 1-27

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Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:47
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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, 01.
  2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
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  10. Celia Costa Cabral & Praveen Kujal & Emmanuel Petrakis, 1998. "Incentives for Cost Reducing Innovations under Quantitative Import Restraints," Annals of Economics and Statistics, GENES, issue 49-50, pages 479-493.
  11. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  12. Albano, Gian Luigi & Lizzeri, Alessandro, 2001. "Strategic Certification and Provision of Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 267-283, February.
  13. Amy Jocelyn Glass, 2001. "Price discrimination and quality improvement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 549-569, May.
  14. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
  15. Tasneem Chipty & Ann Dryden Witte, 1997. "An Empirical Investigation of Firms' Responses to Minimum Standards Regulations," NBER Working Papers 6104, National Bureau of Economic Research, Inc.
  16. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  17. Levitan, Richard & Shubik, Martin, 1972. "Price Duopoly and Capacity Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 111-122, February.
  18. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March.
  19. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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