Quality and Imperfect Competition

Germain Gaudin

American Economic Journal: Microeconomics, 2026, vol. 18, issue 2, 22-55

Abstract: We study quality distortions when firms hold market power. We develop a model allowing for flexible functional forms of demand in order to extend Spence's (1975) monopoly analysis to imperfect competition. We show that quality distortions are determined by a competition effect that captures the externality a firm exerts on its competitors when raising both its price and its quality, in addition to Spence's (1975) effect related to the shape of total market demand. Our approach also allows us to analyze the effects of commodity taxation and technology shocks on the equilibrium allocation when firms compete in prices and qualities.

JEL-codes: D43 D62 H22 L13 L15 O31 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mic.20240045

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