The Optimal Regulation of Product Quality under Monopoly

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Hans Zenger;
  • Journal: Economics Bulletin,volume 12,issue 13,pages1-4
  • Subject: Monopoly
    • jel: jel:L5 | jel:L1

This paper characterizes the optimal quality regulation of a monopolist when quality is observable. In contrast to Sheshinski (1976) it is shown that a minimum quality standard may be desirable even if it induces the firm to reduce output.
  • References (5)

    [1] Besanko, D., S. Donnenfeld and L.J. White (1987). "Monopoly and Quality Distortion: E¤ects and Remedies", Quarterly Journal of Economics 102, 743-768

    [2] Mussa, M. and S. Rosen (1978). "Monopoly and Product Quality", Journal of Economic Theory, 18, 301-17

    [3] Sappington, D. (2005). "Regulating Service Quality: A Survey", Journal of Regulatory Economics 27, 123-154

    [4] Sheshinski, E. (1976). "Price, Quality and Quantity Regulation in Monopoly Situations", Economica 43, 127-137

    [5] Spence, M. (1975). "Monopoly, Quality, and Regulation", Bell Journal of Economics 6, 417-429 6 As noted earlier, Spence (1975) and Sheshinski (1976) show that a monopolist underprovides quality given output when pxq < 0.

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