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Can minimum prices assure the quality of professional services?

  • Georg Meran

    ()

  • Reimund Schwarze

    ()

This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association?s price will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favourable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services.

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File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2007-07.pdf
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Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2007-07.

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Length: 29 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:inn:wpaper:2007-07
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Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
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  1. Matthews, Robin C O, 1991. "The Economics of Professional Ethics: Should the Professions Be More Like Business?," Economic Journal, Royal Economic Society, vol. 101(407), pages 737-50, July.
  2. Maurizi, Alex, 1974. "Occupational Licensing and the Public Interest," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 399-413, Part I, M.
  3. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  4. 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.
  5. Charles Wilson, 1980. "The Nature of Equilibrium in Markets with Adverse Selection," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 108-130, Spring.
  6. Morton I. Kamien & Daniel R. Vincent, 1991. "Price Regulation and Quality of Service," Discussion Papers 920, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Georg Meran & Reimund Schwarze, 2007. "Can minimum prices assure the quality of professional services?," Working Papers 2007-07, Faculty of Economics and Statistics, University of Innsbruck.
  8. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  9. Morris M. Kleiner, 2000. "Occupational Licensing," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 189-202, Fall.
  10. Chassagnon, A. & Chiappori, P.A., 1994. "Insurance Under Moral Hazard and Adverse Selection: The Case of Pure Competition," Papers 28, Laval - Laboratoire Econometrie.
  11. Julia Liebeskind & Richard P. Rumelt, 1989. "Markets for Experience Goods with Performance Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 601-621, Winter.
  12. Winand Emons, 1994. "Credence Goods and Fraudulent Experts," Diskussionsschriften dp9402, Universitaet Bern, Departement Volkswirtschaft.
  13. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
  14. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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