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Price Floors And Quality Choice

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  • Volodymyr Bilotkach

Abstract

type="main"> This paper studies effects of price floors in a simple model of vertical product differentiation. We find that even non-binding price floor (i.e., minimum price set below the lowest Nash equilibrium price in the baseline model) can increase quality on the market, if the cost of quality is sufficiently low. Where a binding price floor does not increase the equilibrium quality, it makes consumers worse off. There is also a possibility of over-investment into quality as a result of the binding minimum price.

Suggested Citation

  • Volodymyr Bilotkach, 2014. "Price Floors And Quality Choice," Bulletin of Economic Research, Wiley Blackwell, vol. 66(3), pages 231-245, July.
    • Handle: RePEc:bla:buecrs:v:66:y:2014:i:3:p:231-245
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    File URL: http://hdl.handle.net/10.1111/j.1467-8586.2011.00422.x
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    References listed on IDEAS

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    7. Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-429, June.
    8. Morton I. Kamien & Daniel R. Vincent, 1991. "Price Regulation and Quality of Service," Discussion Papers 920, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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