The Multiproduct Firm, Quality Choice, and Regulation

David Besanko, Shabtai Donnenfeld and Lawrence White

Journal of Industrial Economics, 1988, vol. 36, issue 4, 411-29

Abstract: A monopolist facing a market of heterogeneous consumers will distort the quality a rray. This paper explores three regulatory remedies-minimum quality s tandards (MQS), maximum price regulation (MPR), and rate of return re gulation (RORR)-that can counteract this distortion. MQS and MPR rais e the quality offered to consumers with a low willingness-to-pay for quality. While MQS have no effect on the quality offered to consumers with a high willingness-to-pay, MPR decreases the quality offered to this group. If production of high- (low-) quality goods is capital i ntensive, RORR increases (decreases) the quality offered to both grou ps. Copyright 1988 by Blackwell Publishing Ltd.

Date: 1988
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