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Content loaded within last 14 days Can Competition Reduce Quality?

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We analyze the effect of competition on quality provision in spatial markets where providers compete in both price and quality (e.g., health care, long-term care, child care, education). By making two key assumptions about the providers in such markets, namely that they are (partly) motivated and have decreasing marginal utility of income, we find, contrary to the existing literature, an unambiguously negative relationship between competition intensity and quality provision. This relationship holds regardless of whether quality and price decisions are made simultaneously or sequentially. However, even if competition reduces quality, it does not necessarily follow that social welfare is reduced.
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Keywords: DECREASING MARGINAL UTILITY OF INCOME; MOTIVATED PROVIDERS; QUALITY AND PRICE COMPETITION

Document Type: Research Article

Publication date: 01 September 2018

This article was made available online on 03 August 2017 as a Fast Track article with title: "Can Competition Reduce Quality?".

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  • Founded as Zeitschrift für die gesamte Staatswissenschaft in 1844.

    As one of the oldest journals in the field of political economy, the Journal of Institutional and Theoretical Economics (JITE) deals traditionally with the problems of economics, social policy, and their legal framework. JITE is listed in the Journal of Economic Literature, the Social Science Citation Index, the International Bibliography of the Social Sciences, and COREJ.

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    From 2013 on all accepted articles are published in an Online First version (in their final layout) to make them searchable and citable by their DOI immediately after peer review and acceptance. Once the article is published in an issue of the journal, the Online First version will be removed.

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