Spatial price equilibrium with information asymmetry in quality and minimum quality standards

• A spatial price equilibrium model with information asymmetry in quality is developed in both static and dynamic versions. Producers at the supply markets are aware of the quality of their products, whereas consumers, located at the demand markets, are aware only of the average quality of the products that are shipped to their demand markets. Minimum quality standards are also captured in order to assess the impacts of such policy interventions. We establish qualitative results, in the form of existence, uniqueness, and stability analysis. An algorithm is proposed, along with a convergence proof. It is then utilized to compute solutions to a spectrum of spatial price equilibrium numerical examples in order to explore the impacts of information asymmetry under different scenarios. The numerical examples, which are of quite general functional forms, reveal that, as the number of supply markets increases, the "anonymizing" effect leads to a decrease in the average quality. On the other hand, as the number of demand markets increases, the pressure to improve quality increases, and the average quality increases. Finally, we demonstrate that, after the imposition of minimum quality standards, the average quality at the demand markets increases and the prices also increase. (C) 2014 Elsevier B.V. All rights reserved.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

Keyword

Spatial price equilibrium

Quality competition

Information asymmetry

Average quality

Minimal

PROJECTED DYNAMICAL-SYSTEMS

NETWORK OLIGOPOLY MODEL

SUPPLY CHAIN

NETWORKS

MARKET

COMPETITION

DIFFERENTIATION

STABILITY

DECISION

DESIGN

LEMONS

Engineering

Industrial

Engineering

Manufacturing

Publication and Content Type

ref (subject category)

art (subject category)