The literature so far has analyzed the effects of Minimum Quality
Standards in oligopoly, using models of pure vertical differentiation,
with only two firms, and perfect information. We analyze products that
are differentiated horizontally and vertically, with imperfect consumers
information, and more than two firms. We show that a MQS changes
the consumers? perception of produced qualities. This increases the
firms? returns from quality enhancing investments, notwithstanding
contrary strategic effects. As a consequence, MQS policies may be
desirable as both, firms and consumers, can gain. This contrasts with
previous results in the literature and provides a justification for the
use of MQS to improve social welfare.
16/02/2005
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