 Quality Competition and Social Welfare in Markets with Partial Coverage: New ResultsGregory S. Amacher, Erkki Koskela and Markku Ollikainen Bulletin of Economic Research, 2005, vol. 57, issue 4, 391-405 Abstract: We use a vertical product differentiation model under partial market coverage to study the social welfare optimum and duopoly equilibrium when convex costs of quality provision are either fixed or variable in terms of production. We show the following new results. First, under fixed costs, the social planner charges a uniform price for the single variant that just covers costs of quality provision. Like the duopoly equilibrium, this socially optimal pricing entails a partially uncovered market, but a smaller share of the market is served compared with the duopoly equilibrium. Second, for the variable cost case, it is socially optimal to provide both high‐ and low‐quality variants, but market shares need not be equal. This differs from the result in fully covered markets. Third, in the duopoly equilibrium, the quality spread is too wide under variable costs relative to the social optimum. Under fixed costs, the duopoly produces two variants, but quality is too low relative to the social optimum, which has only one variant. Date: 2005 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:buecrs:v:57:y:2005:i:4:p:391-405 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Bulletin of Economic Research from Wiley Blackwell |
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