Strategic Quality Choice with Minimum Quality Standards
Stefan Lutz,
Thomas Lyon () and
John Maxwell
No 1793, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
In many markets governments set minimum quality standards while some sellers choose to compete on the basis of quality by exceeding them. Such ‘high-quality’ strategies often win public acclaim, especially when ‘environmental friendliness’ is the dimension along which firms are differentiated. We analyse this phenomenon using a duopoly model of vertical product differentiation. A minimum quality standard leads both the high-quality and the low-quality firm to increase product qualities, lower prices, and increase quantities sold. As a result, total welfare increases. Industry profits fall, however, because reduced quality differentiation intensifies price competition. If the high-quality firm can commit to a quality level before regulations are promulgated, it induces the regulator to weaken its standards, and welfare falls.
Keywords: Environment; Product Differentiation; Quality; Regulation (search for similar items in EconPapers)
JEL-codes: L13 L15 L51 Q28 (search for similar items in EconPapers)
Date: 1998-01
References: Add references at CitEc
Citations: View citations in EconPapers (12)
Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1793 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
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:cpr:ceprdp:1793
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1793
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().