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Attribute dependence and the provision of quality

  • Degryse, Hans
  • Irmen, Andreas

A quality improvement often necessitates modifications of varietal product features. This paper studies firms’ incentives to provide quality when this decision affects the goods’ degree of horizontal differentiation. Intuitively, one is inclined to argue that private incentives to provide quality are insufficient relative to the social optimum if a quality improvement reduces horizontal differentiation. We find that this argument depends on whether the game is simultaneous or sequential. In the former case private incentives prove excessive relative to the social optimum, and in the latter case, insufficient. As a result, a regulator might want to impose either minimum or maximum quality standards.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 31 (2001)
Issue (Month): 5 (September)
Pages: 547-569

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Handle: RePEc:eee:regeco:v:31:y:2001:i:5:p:547-569
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  1. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
  2. Nils-Henrik M. von der Fehr & Kristin Stevik, 1998. "Persuasive Advertising and Product Differentiation," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 113-126, July.
  3. Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Degryse, Hans, 1996. "On the Interaction between Vertical and Horizontal Product Differentiation: An Application to Banking," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 169-86, June.
  5. Dos Santos Ferreira, R. & Thisse, J.-F., . "Horizontal and vertical differentiation: The Launhardt model," CORE Discussion Papers RP -1216, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. von Ungern-Sternberg, Thomas, 1988. "Monopolistic Competition and General Purpose Products," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 231-46, April.
  7. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  8. repec:ner:tilbur:urn:nbn:nl:ui:12-72562 is not listed on IDEAS
  9. Hans Degryse & Andreas Irmen, 2001. "On the incentives to provide fuel-efficient automobiles," Journal of Economics, Springer, vol. 73(2), pages 149-165, June.
  10. repec:dgr:kubcen:199848 is not listed on IDEAS
  11. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Degryse, H.A., 1996. "On the interaction between vertical and horizontal product differentiation : An application to banking," Other publications TiSEM 384e9355-ea79-4b3e-90cb-1, Tilburg University, School of Economics and Management.
  13. Canoy, Marcel & Peitz, Martin, 1997. "The Differentiation Triangle," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 305-28, September.
  14. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February.
  15. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  16. Degryse, H.A., 1995. "Phonebanking," Other publications TiSEM 86ac7d31-714b-4389-bded-2, Tilburg University, School of Economics and Management.
  17. Tabuchi, Takatoshi, 1994. "Two-stage two-dimensional spatial competition between two firms," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 207-227, April.
  18. Mark B. Vandenbosch & Charles B. Weinberg, 1995. "Product and Price Competition in a Two-Dimensional Vertical Differentiation Model," Marketing Science, INFORMS, vol. 14(2), pages 224-249.
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