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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. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. 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.
    4. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

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

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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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