Minimum Quality Standards and Equilibrium Selection with Asymmetric Firms

Olivier Bonroy () and Christos Constantatos ()

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: In a vertically differentiated market with cost asymmetries, the risk dominance criterion selects the equilibrium where the high quality is produced by the efficient firm. We show that a sufficiently high MinimumQuality Standard reverses equilibrium selection. Hence, MQS may be used in order to increase a domestic firm’s profit at the expense of a more efficient foreign rival. This produces higher domestic and lower world welfare. Since the protectionist impact of MQS comes through equilibrium targeting rather than directly affecting equilibrium outcomes, it cannot be easily detected.

Keywords: Vertical product differentiation; Minimum quality standards; Equilibrium selection; Protectionism. (search for similar items in EconPapers)
JEL-codes: L13 L5 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
Date: 2008-10, Revised 2008-10
View list of references

Downloads: (external link)
http://econlab.uom.gr/~econwp/pdf/wp0813.pdf

Related works:
Working Paper: Minimum Quality Standards and Equilibrium Selection with Asymmetric Firms (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:mcd:mcddps:2008_13

Access Statistics for this paper

More papers in Discussion Paper Series from Department of Economics, University of Macedonia
Contact information at EDIRC.
Series data maintained by Theodore Panagiotidis ().