QUALITY CHOICE, SALES RESTRICTION AND THE MODE OF COMPETITION

A regulator imposing sales restrictions or capacity limitation on firms competing in oligopolistic markets may enhance quality provision by these firms. The instrument amounts to protecting entrants or low-quality firms; this in turn makes it profitable to sink money into quality upgrades. Moreover, for most restrictions levels, the impact on quality selection is invariant to the mode of competition. Copyright Blackwell Publishing Ltd and The University of Manchester, 2006.