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Minimum Quality Standards and Consumers Information

  • Paolo Garella

    ()

    (University of Milano, Italy)

  • Emmanuel Petrakis

    ()

    (Department of Economics, University of Crete, Greece)

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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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0510.

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Length: 19 pages
Date of creation: 16 Feb 2005
Date of revision:
Handle: RePEc:crt:wpaper:0510
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  1. George Symeonidis, 2002. "Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&D," Economics Discussion Papers 539, University of Essex, Department of Economics.
  2. Claude Fluet & Paolo G. Garella, 1999. "Advertising and Prices as Signals of Quality in a Regime of Price Rivalry," Cahiers de recherche du Département des sciences économiques, UQAM 9903, Université du Québec à Montréal, Département des sciences économiques.
  3. Economides, Nicholas, 1989. "Quality variations and maximal variety differentiation," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 21-29, February.
  4. Crampes, C. & Hollander, A., 1991. "Duopoly and Quality Standards," Cahiers de recherche 9128, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  5. Ecchia, Giulio & Lambertini, Luca, 1997. "Minimum Quality Standards and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 101-13, March.
  6. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  7. Garella, Paolo G., 2006. ""Innocuous" minimum quality standards," Economics Letters, Elsevier, vol. 92(3), pages 368-374, September.
  8. M. Ali Khan, 2007. "Perfect Competition," PIDE-Working Papers 2007:15, Pakistan Institute of Development Economics.
  9. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September.
  11. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
  12. Chrysovalantou Milliou & Emmanuel Petrakis, 2004. "Business-to-business electronic marketplaces: Joining a public or creating a private," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 99-112.
  13. 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 331-48, September.
  14. Häckner, Jonas, 1999. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Research Papers in Economics 1999:9, Stockholm University, Department of Economics.
  15. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  16. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November.
  17. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Imperfect Competition and Quality Signaling," Vanderbilt University Department of Economics Working Papers 0520, Vanderbilt University Department of Economics.
  18. Naoto Jinji & Tsuyoshi Toshimitsu, 2004. "Minimum Quality Standards under Asymmetric Duopoly with Endogenous Quality Ordering: A Note," Journal of Regulatory Economics, Springer, vol. 26(2), pages 189-199, 09.
  19. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  20. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
  21. Maxwell, John W., 1998. "Minimum quality standards as a barrier to innovation," Economics Letters, Elsevier, vol. 58(3), pages 355-360, March.
  22. Wauthy, X., 1994. "Quality Choice in Models of Vertical Differentiation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1994033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  23. P. Garella, 2003. "The Effects of Minimum Quality Standards: Better or Worse Products?," Working Papers 484, Dipartimento Scienze Economiche, Universita' di Bologna.
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