The Minimum Safety Standard, Consumers' Information, and Competition

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.


Issue Date:
2007
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/18429
Total Pages:
37
Series Statement:
CARD Working Paper 07-WP 441




 Record created 2017-04-01, last modified 2017-04-04

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