The Strategic Entry Behavior Choices of Firms under Minimum Quality Standard

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.