Northwestern University  
IAN SAVAGE
DEPARTMENT OF ECONOMICS

Department of Economics   >   Ian Savage   >    Cheating on Quality

Ian Savage Photo Minimum Quality Standards and the Price of High Quality

John C. Panzar and Ian Savage (2011). Does a minimum quality standard always reduce the price of high quality products? Berkeley Electronic Journal of Economic Analysis and Policy (Contributions) 11(1): Article 39.
[Journal Website]  [Manuscript Version]

This paper investigates the standard finding that instituting a minimum quality standard within a vertically differentiated market unambiguously benefits consumers of high quality products. A competitive model is specified in which random cost shocks lead some firms to cheat in equilibrium on their reputation for high quality. When cheating occurs, instituting or raising the level of a minimum standard can lead to the price of high quality products either increasing or decreasing. The effect of a minimum quality standard on the price of high quality products becomes an empirical rather than a theoretical issue.


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