American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Quality and Imperfect Competition
American Economic Journal: Microeconomics
(pp. 22–55)
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's (1975) monopoly analysis to imperfect competition. We show that quality distortions are determined by a competition effect that captures the externality a firm exerts on its competitors when raising both its price and its quality, in addition to Spence's (1975) 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.Citation
Gaudin, Germain. 2026. "Quality and Imperfect Competition." American Economic Journal: Microeconomics 18 (2): 22–55. DOI: 10.1257/mic.20240045Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D62 Externalities
- H22 Taxation and Subsidies: Incidence
- L13 Oligopoly and Other Imperfect Markets
- L15 Information and Product Quality; Standardization and Compatibility
- O31 Innovation and Invention: Processes and Incentives