Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Kurt R. Brekke
Can competition reduce quality?
(), Luigi Siciliani
() and Odd Rune Straume
Abstract: We study the e¤ect of competition on quality in markets
such as health care, long-term care and education, when providers choose
both prices and quality in a setting of spatial competition. We o¤er a
novel mechanism whereby competition leads to lower quality. This mechanism
relies on two key assumptions, namely that the providers are motivated and
risk-averse. Our proposed mechanism can help explain several empirical
…ndings of a negative e¤ect of competition on quality.
Keywords: Quality and price competition; Motivated providers; Risk-averse providers.; (follow links to similar papers)
JEL-Codes: D21; D43; L13; L30; (follow links to similar papers)
9 pages, April 2, 2012
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