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Price ceilings and quality competition

Author

Listed:
  • Alexander Kemnitz

    (University of Mannheim)

  • Cyrus Hemmasi

    (University of Mannheim)

Abstract

This paper investigates the quality implications of an upper limit on product prices in a vertically differentiated duopoly. It is shown that a price ceiling diminishes the incentives for strategic product differentiation, thereby improving average quality in the market.

Suggested Citation

  • Alexander Kemnitz & Cyrus Hemmasi, 2003. "Price ceilings and quality competition," Economics Bulletin, AccessEcon, vol. 4(20), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-03d40002
    as

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    File URL: http://www.accessecon.com/pubs/EB/2003/Volume4/EB-03D40002A.pdf
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    References listed on IDEAS

    as
    1. David Besanko & Shabtai Donnenfeld & Lawrence J. White, 1987. "Monopoly and Quality Distortion: Effects and Remedies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 743-767.
    2. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
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    Cited by:

    1. André Seidel, 2015. "Compliance Costs, Corruption and the Differentiation of Bureaucratic Services," CESifo Working Paper Series 5683, CESifo.
    2. Volodymyr Bilotkach, 2014. "Price Floors And Quality Choice," Bulletin of Economic Research, Wiley Blackwell, vol. 66(3), pages 231-245, July.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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