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Price and quality competition

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  • Ioana Chioveanu

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Abstract

This study considers an oligopoly model with simultaneous price and quality choice. Ex-ante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium firms use mixed strategies that randomize both price and quality, and obtain strictly positive profits. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards. Copyright Springer-Verlag 2012

Suggested Citation

  • Ioana Chioveanu, 2012. "Price and quality competition," Journal of Economics, Springer, vol. 107(1), pages 23-44, September.
  • Handle: RePEc:kap:jeczfn:v:107:y:2012:i:1:p:23-44
    DOI: 10.1007/s00712-011-0259-z
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    References listed on IDEAS

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    11. Wang, X. Henry & Yang, Bill Z., 2001. "Mixed-strategy equilibria in a quality differentiation model," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 213-226, January.
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    Cited by:

    1. Christos Bilanakos & John S. Heywood & John Sessions & Nikolaos Theodoropoulos, 2014. "Worker Training and Competing on Product Quality," University of Cyprus Working Papers in Economics 08-2014, University of Cyprus Department of Economics.
    2. Chioveanu, Ioana, 2019. "Prominence, complexity, and pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 551-582.
    3. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    4. Karbowski, Adam, 2019. "Cooperative and non-cooperative R&D in product innovation and firm performance," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics, pages 1121-1142.
    5. Bilanakosa, Christos & Heywood, John S. & Sessions, John & Theodoropoulos, Nikolaos, 2017. "Worker Training and Quality Competition," GLO Discussion Paper Series 137, Global Labor Organization (GLO).
    6. Alexander Karpov, 2016. "Health care inequality, patient mobility and welfare," Economics Bulletin, AccessEcon, vol. 36(2), pages 1000-1009.
    7. Liao, Hao & Xiao, Rui & Chen, Duanbing & Medo, Matúš & Zhang, Yi-Cheng, 2014. "Firm competition in a probabilistic framework of consumer choice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 400(C), pages 47-56.
    8. Bilanakos, Christos & Heywood, John S. & Sessions, John & Theodoropoulos, Nikolaos, 2018. "Does demand for product quality increase worker training?," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 159-177.
    9. Yi-Ling Cheng & Shin-Kun Peng, 2014. "Price competition and quality differentiation with multiproduct firms," Journal of Economics, Springer, vol. 112(3), pages 207-223, July.

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    More about this item

    Keywords

    Oligopoly; Price and quality competition; Quality standards; L13; L15; L50;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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