Competition vs. quality in an industry with imperfect traceability

Rouviere, Elodie; Soubeyran, Raphael

Competition vs. quality in an industry with imperfect traceability

2011

Rouviere, Elodie | Soubeyran, Raphael

We consider an industry where firms produce goods that have different quality levels but firms cannot differentiate themselves from rivals. In this situation, producing low-quality generates a negative externality on the whole industry. This is particularly true when consumers cannot identify producers. In this article, we show that under a "Laissez Faire" situation free entry is not socially optimal and we argue that the imposition of a Minimum Quality Standard (MQS) may induce firms to enter the market.

显示更多 [+]