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On the Regulation of a Vertically Differentiated Market
Author(s) -
Lambertini Luca,
Mosca Manuela
Publication year - 1999
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00062
Subject(s) - duopoly , monopoly , microeconomics , social welfare , economic surplus , quality (philosophy) , economics , set (abstract data type) , welfare , quality standard , industrial organization , market economy , cournot competition , computer science , philosophy , programming language , chemistry , epistemology , chromatography , political science , law
The aim of this paper is to investigate a vertically differentiated market served either by a multiproduct monopolist or by duopolists, in which a public authority aiming at increasing the welfare level can choose among two instruments, namely, quality taxation/subsidisation, and minimum quality standard. In the monopoly case they are equivalent as to the social welfare level, in that both allow the regulator to achieve the second best level of social welfare he would attain if he were to set qualities under the monopoly pricing rule, while they are not equivalent in terms of the distribution of surplus. In the duopoly regime, we show that there exists a taxation/subsidisation scheme inducing firms to produce the socially optimal qualites.