Monopoly and Quality Distortion: Effects and Remedies

David Besanko, Shabtai Donnenfeld and Lawrence J White

The Quarterly Journal of Economics, 1987, vol. 102, issue 4, pages 743-67

Abstract: A monopolist that sells in a market in which consumers differ in their willingness to pay for qua lity will distort and enlarge the range of products offered for sale. The authors examine the positive and normative impacts of remedies u sed to counteract such distortions. For the case of a price ceiling, the monopolist improves quality at the low quality end of the market, offsetting the distortion induced by the unregulated exercise of mon opoly power. Social welfare can be shown to increase for a sufficient ly slight degree of price regulation. For minimum quality standards, the social welfare implications are ambiguous because the standards m ay exclude some consumers from the market. Copyright 1987, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 1987
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