|dc.description.abstract||In Chapter 2, we analyze the optimal uniform and discriminatory quality requirements under Cournot and Bertrand competition when two firms produce high, and low, quality products respectively in a domestic market. We find that under uniform and discriminatory quality requirements, the government’s optimal quality requirement depends on the type of competition in which firms engage. When discriminatory quality requirements are adopted, the government should ask both high and low quality firms to raise their quality standard under Bertrand competition and decrease the quality differentiation. However, the government should ask the high quality and low quality firm to raise and lower their quality respectively and increase the quality differentiation under Cournot competition. When uniform quality requirement is adopted, the government should set a quality requirement raising both firms’ quality respectively under Bertrand competition, and the low quality firm will produce at the lowest quality standard, while under Cournot competition the government should not set any quality requirement. In addition to premium agricultural products seal, our results also provide useful strategic recommendations for the government’s quality policy.
In Chapter 3, we analyze the same issues when two firms produce high-quality and low-quality products, respectively, in an international market. The quality requirements in our paper are not set for the foreign firm but are set to regulate products of different qualities, since in the real world a domestic firm could be a high- or low-quality producer. We find that whether the government should raise the quality requirements depends on the type of competition in which firms engage and the adopted quality requirements. By and large, the government should always set quality requirements raising both firms’ quality directly or indirectly, regardless of the quality of the product of the domestic firm. However, if the domestic firm is a high-quality producer, the government should set a quality requirement that enables the domestic firm to monopolize the market when a discriminatory quality requirement is adopted, and should not set any quality requirement when a uniform quality requirement is adopted. Moreover, we show that the quality requirement can actually improve global welfare in most cases.