Reduced Quality and an Unlevel Playing Field Could Make Consumers Happier

Nahum D. Melumad () and Amir Ziv ()
Additional contact information
Nahum D. Melumad: Graduate School of Business, Columbia University, 3022 Broadway, New York, New York 10027-6902
Amir Ziv: Arison School of Business, Interdisciplinary Center Herzliya (IDC), Kanfai Nesharim Street, Herzliya, 46150 Israel

Management Science, 2004, vol. 50, issue 12, 1646-1659

Abstract: We study a model of imperfect competition and limited production capacity in which a key feature is the trade-off between quality and quantity. In particular, lowering product quality enables firms to increase total production. We illustrate that, in the presence of limited capacity, the choice of lower quality often results in increased social welfare. We also explore the relation between the extent of competition and the choice of quality. We find that, in some cases, reduced competition leads to increased production, decreased average quality, increased total welfare, and makes consumers better off. Finally, we consider the possibility of regulator-mandated quality standards. Imposing high-quality standards never improves welfare in our model. On the other hand, mandating an upper bound on quality could either increase or decrease welfare in either a monopoly or a duopoly market.

Keywords: trade-off between quality and quantity; limited capacity; oligopoly; market concentration; competitiveness measure; quality; social welfare; consumer surplus; regulation; Cournot (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1040.0277 (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:12:p:1646-1659

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().