Credible quality investment boosts competition and consumer surplus in markets.
The article explores how committing to quality choices affects product quality and welfare in Bertrand and Cournot competition. In Bertrand competition, quality is lower with credible commitment, leading to higher producer surplus but lower consumer surplus. In Cournot competition, higher quality is better with commitment, improving consumer surplus. Credible commitment can act as a collusive device in Bertrand competition and enhance social welfare in Cournot competition.