Quantity restrictions and endogeneous quality choice

Iñigo Herguera
Authors registered in the RePEc Author Service: Praveen Kujal and Emmanuel Petrakis

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In this paper we show that in an imperfectly competitive market the imposition of quantity restrictions at, or less than, the free trade equilibrium has important strategic effects on the choice of quality. In a vertical product differentiation model where foreign and domestic firms compete in quantities, both firms respond by lowering their qualities for a restriction at, or close enough, to the free trade level. If the restriction is substantially smaller than the free trade equilibrium an increase in average quality is observed only when the foreign firm produces the low quality. The change in quality depends not only on whether the recipient is a high, or low, quality foreign firm. It also depends on how restrictive the constraints are.

Date: 1994-12
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Citations: View citations in EconPapers (1)

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Journal Article: Quantity restrictions and endogenous quality choice (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:2969

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