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Decision
Mechanism, Quality Policy and Competition Mode |
Su-Ying Hsu and Hong Hwand |
Working Paper |
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Product
safety is receiving widespread attentions as a series of products jeopardize
people¡¦s life. Institutional changes
often take place in accompany with a country¡¦s economic development. We attempt to
investigate the effects of different decision mechanisms on a country¡¦s policy. How policies are
affected if the firms engaged in different nature of competition. From the
theoretical point of view, it is still not precisely obvious how an
industrial policy varies with different decision mechanisms. |
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This paper proposes a partial equilibrium
model of vertical product differentiation to compare minimum quality standard
(MQS) under social welfare maximization and referendum. Optimal MQS is the
highest among the decision mechanisms no matter the firms engage in either
Bertrand or Cournot competition. Moreover, the MQS is higher under social
welfare maximization than under laisser-faire when firms engage in Bertrand
competition, but the ranking is reversed when firms engage in Cournot
competition. |
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