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Minimum Quality Standards and Consumers Information

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Abstract

The literature so far has analyzed the effects of Minimum Quality Standards in oligopoly, using models of pure vertical differentiation, with only two firms, and perfect information. We analyze products that are differentiated horizontally and vertically, with imperfect consumers information, and more than two firms. We show that a MQS changes the consumers perception of produced qualities. This increases the firms returns from quality enhancing investments, notwithstanding contrary strategic effects. As a consequence, MQS policies may be desirable as both, firms and consumers, can gain. This contrasts with previous results in the literature and provides a justification for the use of MQS to improve social welfare.

Suggested Citation

  • P. Garella & P. Petrakis, 2004. "Minimum Quality Standards and Consumers Information," Working Papers 532, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:532
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    1. Fluet, Claude & Garella, Paolo G., 2002. "Advertising and prices as signals of quality in a regime of price rivalry," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 907-930, September.
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    JEL classification:

    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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