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  3. American Economic Journal: Microeconomics
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  5. Quality and Imperfect Competition

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Quality and Imperfect Competition

  • Germain Gaudin
American Economic Journal: Microeconomics (Forthcoming)

Abstract

We study quality distortions when firms hold market power. We develop a model allowing for flexible functional forms of demand in order to extend Spence (1975)’s monopoly analysis to imperfect competition. We show that quality distortions are determined by a competition effect which captures the externality a firm exerts on its competitors when raising both its price and its quality, in addition to Spence’s effect related to the shape of total market demand. Our approach also allows us to analyze the effects of commodity taxation and technology shocks on the equilibrium allocation when firms compete in prices and qualities.

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