Are ”innocuous” Minimum Quality Standards really innocuous?

Garella, Paolo G. (2004) Are ”innocuous” Minimum Quality Standards really innocuous? p. 8. DOI 10.6092/unibo/amsacta/1553.

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Abstract

The present note shows that ”innocuous” Minimum Quality Standards, namely standards that are below the lowest quality level observed in the market, may have effects on equilibrium outcomes. In particular this is true in a duopoly where one high quality firm invests in R&D to lower its cost of quality improvements. A Standard that is below, but close to, the lowest quality observed in the market reduces the incentive to invest by the quality leading firm.

Abstract

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