Price and Quality Competition Under Adverse Selection: Market Organization and Efficiency

Posted: 13 Aug 2003

See all articles by Gary Biglaiser

Gary Biglaiser

University of North Carolina

Ching-to Albert Ma

Boston University - Department of Economics

Abstract

Firms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices.

Suggested Citation

Biglaiser, Gary and Ma, Ching-To Albert, Price and Quality Competition Under Adverse Selection: Market Organization and Efficiency. Available at SSRN: https://ssrn.com/abstract=406688

Gary Biglaiser (Contact Author)

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

Ching-To Albert Ma

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4010 (Phone)
617-353-4449 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
619
PlumX Metrics