Kurt R. Brekke, Luigi Siciliani, Odd Rune Straume

Can Competition Reduce Quality?

Volume 174 () / Issue 3, pp. 421-447 (27)

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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 providersin 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.

Kurt R. Brekke No current data available.

Luigi Siciliani No current data available.

Odd Rune Straume No current data available.