Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289048 
Year of Publication: 
2020
Citation: 
[Journal:] The Japanese Economic Review [ISSN:] 1468-5876 [Volume:] 73 [Issue:] 3 [Publisher:] Springer Nature [Place:] Singapore [Year:] 2020 [Pages:] 515-537
Publisher: 
Springer Nature, Singapore
Abstract: 
We study a two-period model of a duopoly with goods differentiated by quality. The periods’ length corresponds to the goods’ useful lifespan, and consumers are heterogeneous in their valuation of quality. In the second period, the regulator fixes a minimum quality standard based either on the quality supplied by the high-quality firm in the first period (strict regulation) or on the average quality supplied in the first period (average regulation). Assuming a covered market, we show that such an approach leads to decreasing qualities in the first period, and increasing qualities in the second one. In both periods, net utility aggregated over consumers is increasing and profits aggregated over firms are decreasing. Taken together, average regulation always leads to an increase in the present value of welfare, whereas strict regulation can cause a decline. If the discount factor exceeds a certain threshold, a policy based on average regulation is even superior to implementing the optimal minimum quality standard already in the first period.
Subjects: 
C72
D43
I18
L15
JEL: 
C72
D43
I18
L15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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