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Price and Quality Competition

Listed author(s):
  • Chioveanu, Ioana

This study considers an oligopoly model with simultaneous price and quality choice. Ex-ante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium firms use mixed strategies that randomize both price and quality, and obtain strictly positive profits. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards.

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File URL: https://mpra.ub.uni-muenchen.de/21647/1/MPRA_paper_21647.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21647.

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Date of creation: 01 Aug 2009
Date of revision: 01 Feb 2010
Handle: RePEc:pra:mprapa:21647
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  1. Crampes, C. & Hollander, A., 1992. "Duopoly and Quality Standards," Papers 92.g, Toulouse - GREMAQ.
  2. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
  3. Armstrong, Mark & Chen, Yongmin, 2007. "Inattentive Consumers and Product Quality," MPRA Paper 4797, University Library of Munich, Germany.
  4. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  5. 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 1328-1346, December.
  6. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  7. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
  8. Mark Armstrong, 2008. "Interactions between Competition and Consumer Policy," CPI Journal, Competition Policy International, vol. 4, pages -.
  9. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
  10. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-429, June.
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