The Strategic Entry Behavior Choices of Firms under Minimum Quality Standard

Huishuang He

doi:10.4236/tel.2014.49098

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.

Highlights

The industry’s competitiveness and performance level tend to be affected by entry condition and the degree of ease
The absolute cost advantage of incumbent and product differentiation, economies of scale as well as the government regulations are considered to be the main reasons causing the barrier to entry
We are to solve this problem, in the free entry and under the government’s quality regulation, in order to maintain the market power and to ensure higher ability of profits, what impacts would the incumbents have on the decisions’ of these potential entrants and market performances. This analysis has significant reference and value of application when we solve the disorderly competition of firms in reality and the minimum quality standards regulation of the government

Summary

Introduction

The industry’s competitiveness and performance level tend to be affected by entry condition and the degree of ease. We are to solve this problem, in the free entry and under the government’s quality regulation, in order to maintain the market power and to ensure higher ability of profits, what impacts would the incumbents have on the decisions’ of these potential entrants and market performances. This analysis has significant reference and value of application when we solve the disorderly competition of firms in reality and the minimum quality standards regulation of the government. A general description on related reference is displayed in part 2, and a basic model and its equilibrium analysis about price, quality, profit and welfare are displayed in part 3, and the basic occlusions and the relevant policy implications are showed in part 4

General Description on Related Reference

The Basic Model

Strategic Behavior under Free Entry

The Analysis about Consumers’ Surplus and Social Welfare

Basic Conclusions

The Relevant Policy Implications