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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 (MQS) in oligopoly, using models of pure vertical differentiation, with only two firms, and perfect information. We consider 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. Our analysis justifies the use of MQS in industries where consumers cannot precisely ascertain the quality of goods, for instance pharmaceuticals or products with chemical components involved.

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Authors and Affiliations

  1. Departimento di Scienze Economiche, Aziendali e Statistiche, University of Milano, via Conservatorio 7, 20122, Milano, Italy

    Paolo G. Garella

  2. Department of Economics, University of Crete, University Campus, 74100, Rethymno, Greece

    Emmanuel Petrakis

Authors
  1. Paolo G. Garella
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  2. Emmanuel Petrakis
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Corresponding author

Correspondence to Emmanuel Petrakis.

Additional information

Paper presented at the 2004 ASSET conference in Barcelona, and at the 2005 EARIE conference in Porto. The authors wish to thank an anonymous referee for helpful suggestions.

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Garella, P.G., Petrakis, E. Minimum quality standards and consumers’ information. Economic Theory 36, 283–302 (2008). https://doi.org/10.1007/s00199-007-0269-9

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  • DOI: https://doi.org/10.1007/s00199-007-0269-9

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