TITLE:
The Strategic Entry Behavior Choices of Firms under Minimum Quality Standard
AUTHORS:
Huishuang He
KEYWORDS:
Minimum Quality Standard, Entry Deterrence, Product Differentiation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.9,
December
1,
2014
ABSTRACT: In order to analyze the strategic entry
behavior choices of firms under minimum quality standard, a basic model is made
under the endogenous minimum quality standard. An industry’s competitiveness
and the level of performance tend to be subject to the entry conditions and the
ease of entry. For entrants, the basic entry technological constraint is the
minimum quality standard. In differentiated products markets, when there is no
minimum quality standard and the entry cost is small, the entrant’ profit is the
same, whether they choose the high quality or low quality to enter the product
market. While in the case of endogenous minimum quality standard, the incumbent
may choose to produce low quality products, and the entrant may choose to
produce high quality products, which lead to the lack of competition in product
markets. Therefore, government should create an open and competitive market
environment and efficient policy guidance for firms.