Government Subsidy for Quality Improvement

Cheong Seog Seo
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Cheong Seog Seo: Sanji University

Korean Economic Review, 1995, vol. 11, issue 1, 49-66

Abstract: I examine the existence of a subgame perfect equilibrium in a duopoly where the products are diflerentiated in quality, and derive the conditions under which an interior solution for the optimal qualities is obtained. The effect of government subsidy for quality improvement is investigated. I find that, in equilibrium, the subsidization of the high quality good may cause the quality of both product to fall, while the subsidization of the low quality good unambiguously improves the quality of both products.

Date: 1995
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