The Curious Case of Competition and Quality
Journal of Antitrust Enforcement (2015) doi: 10.1093/jaenfo/jnv023
43 Pages Posted: 12 Sep 2014 Last revised: 24 Sep 2015
Date Written: October 1, 2014
Alongside the consideration of price, competition authorities recognize that quality can be as, if not more, important in some markets. But as competition authorities also recognize, identifying the dimensions of competition important to many consumers is difficult. Even when these dimensions of quality are identified, measuring them represents additional challenges.
To circumvent these challenges, competition authorities rely on several heuristics when assessing a merger’s, cartel’s or monopolistic restraint’s impact on quality. Often the heuristics work well for the competition authorities.
Our paper, however, identifies several scenarios where these heuristics break down, when competition and quality are not positively correlated, and when an increase in competition can actually reduce consumer welfare. We also identify two necessary, but not sufficient, conditions that are common to every scenario.
With these two conditions in mind, we provide instances when an increase in competition will not increase quality (when one would expect it should). We also provide instances when an increase in competition will lead to quality degradation.
Keywords: Competition Policy, Antitrust, Two-Sided Markets, Quality, Behavioral Exploitation, Behavioral Economics, Deception, Choice Overload
JEL Classification: D63, L15, D43, K21, L40
Suggested Citation: Suggested Citation