EconStor >
Stockholm School of Economics >
EFI - The Economic Research Institute, Stockholm School of Economics >
SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/56127
  
Title:Producers bargaining over a quality standard PDF Logo
Authors:Argenton, Cédric
Issue Date:2006
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 618
Abstract:We study an asymmetric information model in which two firms are active on a market where buyers only observe the average quality supplied. Quantities and cost structures are exogenously given and firms compete in quality. Before choosing their qualities, they bargain over a perfectly enforcable minimum quality standard. The bargaining outcome is given by the Kalai-Smorodinsky (KS) solution. Agreement on a binding standard is possible only if the firms are sufficiently similar with respect to their production costs. The agreed-upon standard always falls short of the joint-profit-maximizing (or, for that matter, the efficient) level. It is decreasing in the high-cost producer's cost of production. Yet, it first increases then decreases with the low-cost producer's cost of production, showing that the latter's bargaining position can be enhanced by seemingly adverse cost changes.
Subjects:asymmetric information
minimum quality standard
duopoly
bargaining
free riding
JEL:D43
D82
L13
L15
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

Files in This Item:
File Description SizeFormat
506271099.pdf369.72 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/56127

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.