Cellini, Roberto, Siciliani, Luigi orcid.org/0000-0003-1739-7289 and Straume, Odd Rune (2018) A dynamic model of quality competition with endogenous prices. Journal of Economic Dynamics and Control. pp. 190-206. ISSN 0165-1889
Abstract
We develop a dynamic model of price and quality competition in order to analyze the effects of competition on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level. Our model combines a differential-game approach with a Hotelling spatial competition framework, and our analysis applies in particular to industries such as long-term care, health care, child care and education. If providers (nursing homes, hospitals, schools, nurseries) use closed-loop decision rules, which imply strategic interaction over time, we show that, although increased competition leads to higher quality in the steady state, quality provision is nevertheless lower than under open-loop rules, and also suboptimally low from a welfare perspective. Thus, our analysis identifies dynamic strategic interaction between competing providers as a potential source of inefficiency in quality provision.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2018 Elsevier B.V. All rights reserved. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. |
Keywords: | Competition,Differential-games,Quality |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 09 Jul 2018 15:00 |
Last Modified: | 11 Mar 2025 00:06 |
Published Version: | https://doi.org/10.1016/j.jedc.2018.06.004 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1016/j.jedc.2018.06.004 |
Related URLs: | |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:133105 |
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