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Monopoly and Quality Distortion: Effects and Remedies

Author

Listed:
  • David Besanko
  • Shabtai Donnenfeld
  • Lawrence J. White
Abstract
A monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale. We examine the positive and normative impacts of remedies used to counteract such distortions. For the case of a price ceiling, the monopolist improves quality at the low quality end of the market, offsetting the distortion induced by the unregulated exercise of monopoly power. Social welfare can be shown to increase for a sufficiently slight degree of price regulation. For minimum quality standards, the social welfare implications are ambiguous because the standards may exclude some consumers from the market.

Suggested Citation

  • David Besanko & Shabtai Donnenfeld & Lawrence J. White, 1987. "Monopoly and Quality Distortion: Effects and Remedies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 743-767.
    • Handle: RePEc:oup:qjecon:v:102:y:1987:i:4:p:743-767.
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    File URL: http://hdl.handle.net/10.2307/1884279
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