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A Note on the Inefficiency of Competitive Markets For Quality Goods

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  • Schroeter, John R.

Abstract

This note describes and investigates an equilibrium model of a service market in which customers search among many firms for ones offering acceptable combinations of money price and expected waiting time. Although neither firms nor customers possess market power, the noncooperative equilibrium of the model is inefficient: Forcing customers to be more selective in their choices of suppliers can produce Pareto improvements in welfare. This result is due to an externality, in queue accession decisions, which others have identified in related contexts..

Suggested Citation

  • Schroeter, John R., 1993. "A Note on the Inefficiency of Competitive Markets For Quality Goods," ISU General Staff Papers 199305010700001248, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:199305010700001248
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    References listed on IDEAS

    as
    1. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258, National Bureau of Economic Research, Inc.
    2. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August.
    3. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    4. De Vany, Arthur S & Saving, Thomas R, 1983. "The Economics of Quality," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 979-1000, December.
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