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Collective Reputation and Market Structure: Regulating the Quality vs Quantity Trade-of

  • Pierre Fleckinger

    (CECO - Laboratoire d'econometrie de l'école polytechnique - CNRS - Polytechnique - X)

Between market unraveling and individual reputation building, markets for experience goods often exhibit intermediate patterns. This paper explores the situation in which consumers know the average quality offered by a set of producers, but not the quality of one given product. A first issue is how such an aggregate signal shapes competition when strategic variables are quantity and quality. The equilibrium welfare function is convex in the number of competing firms as a consequence of decreasing quality and increasing quantity. A second issue is regulation. It is possible to trade-off quantity against quality through a number of regulatory tools. Among one-instrument policies, entry and quantity regulation perform better than price-based regulation. Policy implications for professional regulation in service markets and producers' organisations in agriculture are briefly discussed.

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Date of creation: 2007
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Handle: RePEc:hal:wpaper:hal-00243080
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