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Research Details

Regulation and Product Quality in a Multiproduct Firm, Journal of Industrial Economics

Abstract

A monopolist facing a market of heterogeneous consumers will distort the quality array. This paper explores three regulatory remedies--minimum quality standards (MQS), maximum price regulation (MPR), and rate of return regulation (RORR)--that counteract this distortion. MQS and MPR raise the quality offered to consumers with a low willingness-to-pay for quality. While MQS have no effect on the quality offered to consumers with a high willingness-to-pay, MPR decreases the quality offered to this group. If production of high- (low-)quality goods is capital-intensive, RORR increases (decreases) the quality offered to both groups.

Type

Article

Author(s)

David Besanko

Date Published

1988

Citations

Besanko, David. 1988. Regulation and Product Quality in a Multiproduct Firm. Journal of Industrial Economics. 36(4): 411-429.

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