Abstract
This article proposes a differential game model, in order to analyze markets in which regional regulation is operative and competition is based on quality. The case we have in mind is healthcare public service, where consumers (patients) choose the provider mainly basing on the providers’ location and the quality of services, while prices play a more limited role. In most European countries, within the same State, regional (or local) providers compete on quality to attract demand. Market regulation is set at national and/or regional level. Our model highlights the features of equilibrium in such a framework and specifically investigates how the differences in product quality evolve among regions and how inter-regional demand flows behave. Differently from some available similar models, that do not take into account the regional dimension of the decision process, we find that quality differentials among regions may persist in equilibrium.
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