Quality Leadership when Regulatory Standards are Forthcoming

Lutz, Stefan; Lyon, Thomas P.; Maxwell, John W.

doi:10.1111/1467-6451.00126

Cited by 166 publications

(128 citation statements)

References 18 publications

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“…The practical policy implication is that product standards should not be determined by government agencies but rather by international standard-developing organisations comprising of market participants from all countries, similar to the International Standards Organisation (IS0) 8 .…”

Section: The Regulated World Market Equilibriummentioning

confidence: 99%

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Vertical product differentiation, minimum quality standards, and international trade

Petropoulou

2012

Oxford Economic Papers

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Regulatory standards that control the quality of vertically differentiated products are becoming increasingly important for industrial production and international trade. There is considerable debate surrounding the possible effects of standards on international trade and social welfare. This paper examines the implications of minimum quality standards (MQSs) in a free trade environment with two countries and two firms competing in prices in an industry characterised by vertical product differentiation. Mild minimum quality standards are shown to raise welfare by increasing the quality, lowering the (quality-adjusted) price of traded goods and increasing market coverage. Nevertheless, cross-country externalities result in governments choosing MQSs above or below the world optimum thereby reducing welfare by inducing exit and reducing competition. The model suggests that international organisations, such as the International Organization for Standardization (ISO), may be better positioned to improve welfare outcomes through the development of product standards.Keywords: International Trade, JEL Classification Numbers: * I would like to thank the ESRC for their financial support and Tony Venables, Alejandro Cunat, Steve Redding, Henry Overman, Gilles Duranton and Kwok Tong Soo for their invaluable comments. Moreover, I would also like to thank all seminar and conference participants at the London School of Economics, and elsewhere, for their feedback. All errors are mine.

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Section: The Regulated World Market Equilibriummentioning

confidence: 99%

“…For example, if high quality firms (whose quality level exceeeds the minimum standard) can commit to a particular quality level prior to government regulation 9 , then the regulator may be induced to weaken the regulatory standard. Lutz et al (2000) examine the implications of such 'quality leadership strategies'.…”

Section: The Way Forwardmentioning

confidence: 99%

Vertical product differentiation, minimum quality standards, and international trade

Petropoulou

2012

Oxford Economic Papers

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“…The standard can be a potential barrier to innovation (Maxwell, 1998, andGarella, 2006) or to entry (Lutz, 2000). Lutz et al (2000) showed that if the high-quality firm can commit to a quality level before regulations are promulgated, it induces the regulator to weaken standards, and welfare falls. Further, the absence of restriction in the number of firms leading to a duopoly (in propositions 1 and 2) needs to be mitigated with respect to the government's ability to collect information regarding parameters such as firms' fixed costs and market demand.…”

Section: Extensionsmentioning

confidence: 99%

“…A large part of this literature considers a context of perfect information about quality for consumers, as, for instance, in Ronnen (1991), Crampes andHollander (1995), Ecchia and Lambertini (1997), Scarpa (1998), Lutz et al (2000), Valletti (2000), Garella (2006) and Jinji and Toshimitsu (2004). Some other papers focus on the standard in a context of imperfect information for consumers, as in Leland (1979), Garella and Petrakis (2006), and Lapan and Moschini (2006).…”

Section: Introductionmentioning

confidence: 99%

Minimum safety standard, consumers’ information and competition

Marette

2007

J Regul Econ

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This paper explores the effects of a standard influencing care choice. Firm(s) may increase the probability of offering safe products by incurring a cost. Under duopoly, they compete either in prices or in quantities. Under perfect information about safety for consumers, the selected standard that corrects a safety underinvestment is always compatible with competition. Safety overinvestment only emerges under competition in quantities and relatively low values of the cost. Under imperfect information about safety for consumers, the standard leads to a monopoly situation. However, for relatively large values of the cost, a standard cannot impede the market failure coming from the lack of information. AbstractThis paper explores the effects of a standard influencing care choice. Firm(s) may increase the probability of offering safe products by incurring a cost. Under duopoly, they compete either in prices or in quantities. Under perfect information about safety for consumers, the selected standard that corrects a safety underinvestment is always compatible with competition. Safety overinvestment only emerges under competition in quantities and relatively low values of the cost. Under imperfect information about safety for consumers, the standard leads to a monopoly situation. However, for relatively large values of the cost, a standard cannot impede the market failure coming from the lack of information.

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“…literature (e.g., for public voluntary programs, see Wu and Babcock, 1999;Lyon and Maxwell, 2003;Glachant, 2007; for negotiated agreements, Segerson and Miceli, 1998;Manzini and Mariotti, 2003;for unilateral commitments, Bagnoli and Watts, 2003;Lutz, Lyon and Maxwell, 2000).…”

Section: Introductionmentioning

confidence: 99%

The design of voluntary agreements in oligopolistic markets

Brau

Carraro

2010

J Regul Econ

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This paper analyses the conditions under which a group of firms have the incentive to sign a voluntary agreement (VA) to control polluting emissions even in the presence of free-riding by other firms in the industry. We consider a policy framework in which firms in a given industry decide whether or not to sign a VA proposed by an environmental regulator. We identify the features that a VA should possess in order to provide firms with an incentive to participate in the VA and to enhance its economic and environmental effectiveness. Under very general conditions on the shape of the demand schedule, we obtain the following results. First, a VA does not belong to the equilibrium of the coalition game when benefits from voluntary emission abatement are a pure public good, unless an industry emission target is set by the regulator. Second, in the presence of partial spillovers-i.e. when signatories obtain more benefits from the VA than non-signatories-a VA can belong to the equilibrium only if a minimum participation rule is guaranteed. Third, a VA with a minimum participation rule and a minimum mandatory emission abatement may improve welfare (and even industry profits) compared to a VA in which firms are free to set their own profit maximizing abatement level

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Quality Leadership when Regulatory Standards are Forthcoming

Cited by 166 publications

References 18 publications

Vertical product differentiation, minimum quality standards, and international trade

Vertical product differentiation, minimum quality standards, and international trade

Minimum safety standard, consumers’ information and competition

The design of voluntary agreements in oligopolistic markets

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