Do minimum quality standards bite in polluting industries?

Luca Lambertini (luca.lambertini@unibo.it) and Alessandro Tampieri

Research in Economics, 2012, vol. 66, issue 2, 184-194

Abstract: We investigate the introduction of a minimum quality standard in a vertically differentiated duopoly where production is polluting. We examine the alternative frameworks with quality-dependent fixed or variable costs, under both price and quantity competition. Under Bertrand behaviour, the introduction of a binding MQS regulation reduces product differentiation, which causes an increase in the output and pollution. Hence its adoption must rely on the increase in consumer surplus generated by the increase in output and average quality. Conversely, in the Cournot setting, a binding MQS decreases output and pollution, and its adoption is driven by the fact that the balance between these effects and the associated increase in average quality yields a welfare improvement.

Keywords: MQS; Environmental externality; Product quality (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Minimum Quality Standard Under Cournot Competition and Pollution (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:66:y:2012:i:2:p:184-194

DOI: 10.1016/j.rie.2012.02.001

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