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Minimum quality standards and consumers’ information

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  • Paolo Garella

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  • Emmanuel Petrakis

    ()

Abstract

The literature so far has analyzed the effects of Minimum Quality Standards in oligopoly, using models of pure vertical differentiation, with only two firms, and perfect information. We analyze products that are differentiated horizontally and vertically, with imperfect consumers information, and more than two firms. We show that a MQS changes the consumers’ perception of produced qualities. This increases the firms’ returns from quality enhancing investments, notwithstanding contrary strategic effects. As a consequence, MQS policies may be desirable as both, firms and consumers, can gain. This contrasts with previous results in the literature and provides a justification for the use of MQS to improve social welfare.
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Suggested Citation

  • Paolo Garella & Emmanuel Petrakis, 2008. "Minimum quality standards and consumers’ information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(2), pages 283-302, August.
  • Handle: RePEc:spr:joecth:v:36:y:2008:i:2:p:283-302
    DOI: 10.1007/s00199-007-0269-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Minimum quality standards; Imperfect consumer information; Oligopoly; Horizontal and vertical product differentiation; Industry regulation; L0; L5;

    JEL classification:

    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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