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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Volume 11, Issue 1 (Jun 2011)

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Does a Minimum Quality Standard Always Reduce the Price of High Quality Products?

John C Panzar / Ian Savage
Published Online: 2011-06-27 | DOI: https://doi.org/10.2202/1935-1682.2333

Abstract

This paper investigates the standard finding that instituting a minimum quality standard within a vertically differentiated market unambiguously benefits consumers of high quality products. A competitive model is specified in which random cost shocks lead some firms to cheat in equilibrium on their reputation for high quality. When cheating occurs, instituting or raising the level of a minimum standard can lead to the price of high quality products either increasing or decreasing. The effect of a minimum quality standard on the price of high quality products becomes an empirical rather than a theoretical issue.

Keywords: reputation; cheating; product quality; minimum quality standard

About the article

Published Online: 2011-06-27


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.2333.

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©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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