Competition vs. quality in an industry with imperfect traceability

Elodie Rouvière (1) , Raphael Soubeyran (2)

1 UMR G-EAU - Gestion de l'Eau, Acteurs, Usages
2 LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée

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. The authors are very grateful to an anonymous referee and Quan Wen as an Associate Editor for their helpful comments and suggestions. We have also benefited from comments from Eric Brousseau, Julie Caswell, Gilles Grolleau, Emmanuel Raynaud, Alban Thomas, Antoine Soubeyran, Hubert Stahn, and Isabelle Vagneron on previous versions. Citation: Elodie Rouviere and Raphael Soubeyran, (2011) ''Competition vs. quality in an industry with imperfect traceability.

Mots clés: Entry; Externality; Minimum Quality Standard; Quality

Domaines: Economies et finances

Elodie Rouvière, Raphael Soubeyran. Competition vs. quality in an industry with imperfect traceability. Economics Bulletin, 2011, 31 (4), pp.3052-3067. ⟨hal-02643261v2⟩