QUALITY IN CONTESTABLE MARKETS: A HISTORICAL PROBLEM?

The theory of contestable markets has made notable inroads into the traditional way of looking at markets with only a few producers; but its relationship to the theory of monopolistic competition in general, and the quality of goods in particular, has not been explored in depth. In reading about the fortunes of the English cloth industry, one is struck by the continued repetition of complaints about quality. This widespread belief led to the passage of many laws whose intent was to secure the uniformly good quality of woolen cloth, the primary English export of the three centuries prior to the Industrial Revolution. Cloth production appears to be peculiarly prone to such problems for we find the uneven quality of raw silk to be an issue in nineteenth century China. In order to separate out the effects of consumer tastes and knowledge from those of industrial structure, it is necessary to find a commodity whose quality is readily ascertainable by consumers and where some "objective" determination of the most desirable quality can be arrived at.