IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Price Regulation and Quality of Service

  • Morton I. Kamien
  • Daniel R. Vincent

Public concern has been rising about whether market forces are sufficient to ensure the optimal choice of quality of services. We examine a model in which unregulated competition leads to an underprovision of quality from a social perspective and then study the effects of price regulation. Although price floors sometimes have the expected effect of increasing the incentives to raise the quality of services, their imposition changes the nature of competitive behaviour in subtle ways and often changes the relative positions of firms in the market. We show that no price floor exists which will achieve the socially optimal quality choice and the only price floors that result in symmetric firm behaviour are those which involving an overinvestment in quality. We also examine the effects of imperfect consumer information about quality under various consumer learning processes and find that slow but plausible learning behavior can lead to an increase in quality. We also show that firms typically benefit from consumers' uncertainty about the quality of both their own good and their rival's. Informative advertising about the firm's or its rival's product is not in the firm's best interest.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: main text
Download Restriction: no

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 920.

in new window

Date of creation: Feb 1991
Date of revision:
Handle: RePEc:nwu:cmsems:920
Contact details of provider: Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Phone: 847/491-3527
Fax: 847/491-2530
Web page:

More information through EDIRC

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chalk, Andrew J, 1987. "Market Forces and Commercial Aircraft Safety," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 61-81, September.
  2. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  3. Mitchell, Mark L & Maloney, Michael T, 1989. "Crisis in the Cockpit? The Role of Market Forces in Promoting Air Travel Safety," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 329-55, October.
  4. Borenstein, Severin & Zimmerman, Martin B, 1988. "Market Incentives for Safe Commercial Airline Operation," American Economic Review, American Economic Association, vol. 78(5), pages 913-35, December.
  5. D. Mark Kennet, 1993. "Did Deregulation Affect Aircraft Engine Maintenance? An Empirical Policy Analysis," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 542-558, Winter.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:920. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.