Journal article
Minimum quality standard regulation under imperfect quality observability
Journal of regulatory economics, v 41(2)
01 Apr 2012
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
Minimum quality standards (MQS) constitute an important regulatory tool that can be used to raise product qualities, to benefit consumers and to increase market participation. One of the main assumptions in the existing literature is that firms must comply with standards. Nevertheless, in many industries, and in particular the service industry, quality observability and enforceability are not perfect. Some low quality firms do not comply with standards. What are the welfare implications of an MQS regulation in such an environment? We develop a price competition model of vertical differentiation that accounts for these empirical observations. Contrary to well-established results in the literature, MQS can increase quality disparity between firms and raise hedonic prices. Some consumers get hurt and market participation decreases.
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Details
- Title
- Minimum quality standard regulation under imperfect quality observability
- Creators
- Min Chen - Florida International UniversityKonstantinos Serfes - Drexel University
- Publication Details
- Journal of regulatory economics, v 41(2)
- Publisher
- Springer Nature
- Number of pages
- 23
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000302267000005
- Scopus ID
- 2-s2.0-84857911630
- Other Identifier
- 991019169416104721
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics