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http://hdl.handle.net/10419/56127
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| Title: | | Producers bargaining over a quality standard  |
| 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
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