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Ensuring quality provision through capacity regulation under price competition

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  • BOCCARD, Nicolas
  • WAUTHY, Xavier Y.

Abstract

We show in a simple duopoly model of vertical differentiation that when a welfare maximizing regulator wishes to ensure entry while avoiding strategic quality underprovision, regulating the incumbent's capacity is preferable to imposing a "Minimum Quality Standard" on products. In order to establish this result, we make an original contribution to the study of Bertrand-Edgeworth competition in a market with differentiated products.
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Suggested Citation

  • BOCCARD, Nicolas & WAUTHY, Xavier Y., 2010. "Ensuring quality provision through capacity regulation under price competition," LIDAM Reprints CORE 2259, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2259
    DOI: 10.2202/1935-1704.1655
    Note: In : The B.E. Journal of Theoretical Economics, 10(1) 2010, Article 47
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    References listed on IDEAS

    as
    1. Nicolas Boccard & Xavier Wauthy, 2006. "Quality Choice, Sales Restriction And The Mode Of Competition," Manchester School, University of Manchester, vol. 74(1), pages 64-84, January.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Stefan Lutz & Thomas P. Lyon & John W. Maxwell, 2000. "Quality Leadership when Regulatory Standards are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
    4. Carl Davidson & Raymond Deneckere, 1986. "Long-Run Competition in Capacity, Short-Run Competition in Price, and the Cournot Model," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 404-415, Autumn.
    5. Scarpa, Carlo, 1998. "Minimum quality standards with more than two firms1," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 665-676, September.
    6. Crampes, Claude & Hollander, Abraham, 1995. "Duopoly and quality standards," European Economic Review, Elsevier, vol. 39(1), pages 71-82, January.
    7. Dave Furth & Dan Kovenock, 1993. "Price leadership in a duopoly with capacity constraints and product differentiation," Journal of Economics, Springer, vol. 57(1), pages 1-35, February.
    8. Amy Jocelyn Glass, 2001. "Price discrimination and quality improvement," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(2), pages 549-569, May.
    9. Auriol, Emmanuelle, 1998. "Deregulation and quality," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 169-194, March.
    10. BOCCARD, Nicolas & WAUTHY, Xavier, 2009. "Entry accommodation under multiple commitment strategies: judo economics revisited," LIDAM Discussion Papers CORE 2009050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Amy Jocelyn Glass, 2001. "Price discrimination and quality improvement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 549-569, May.
    12. Tasneem Chipty & Ann Dryden Witte, 1997. "An Empirical Investigation of Firms' Responses to Minimum Standards Regulations," NBER Working Papers 6104, National Bureau of Economic Research, Inc.
    13. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
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    17. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    18. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-245, November.
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