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Quality Distortion by a Discriminating Monopolist

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  • Srinagesh, Padmanabhan
  • Bradburd, Ralph M

Abstract

The standard model of monopolistic imperfect quality discrimination involving consumer self-selection has shown that no distortion occurs at the highest quality level, while all lower quality levels are degraded in order to maintain profitable market segmentation. This result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality. The paper develops a reasonable model in which the standard assumption is not satisfied, and this alternative model yields vastly different conclusions regarding the form of quality distortion. In particular, quality may be enhanced, not degraded, to maintain profitable market segmentation. Copyright 1989 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 79 (1989)
Issue (Month): 1 (March)
Pages: 96-105

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Handle: RePEc:aea:aecrev:v:79:y:1989:i:1:p:96-105

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Cited by:
  1. Philippe Mahenc & Marion Podesta, 2012. "The monopolist is not the best environmentalistÂ’s best friend: An example," Post-Print hal-00955470, HAL.
  2. Sibly, Hugh, 2008. "Quality Versus Quantity in Vertically Differentiated Products Under Non-Linear Pricing," Working Papers 7335, University of Tasmania, School of Economics and Finance, revised 01 Jun 2008.
  3. Inderst, Roman, 2004. "Contractual distortions in a market with frictions," Journal of Economic Theory, Elsevier, vol. 116(1), pages 155-176, May.
  4. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(1), pages 1-19.
  5. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
  6. Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Diagnosing Efficiency of Distortion in Discrete Screening," EERC Working Paper Series 08/02e, EERC Research Network, Russia and CIS.
  7. Yasuji Otsuka & Bradley Braun, 2003. "Price Cap Regulation in the Cable Television Industry: Why was the Demand Stagnant?," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 41-55, March.
  8. Lacourbe, Paul, 2012. "A model of product line design and introduction sequence with reservation utility," European Journal of Operational Research, Elsevier, vol. 220(2), pages 338-348.
  9. de Palma, Andre & Leruth, Luc, 1996. "Variable willingness to pay for network externalities with strategic standardization decisions," European Journal of Political Economy, Elsevier, vol. 12(2), pages 235-251, September.
  10. Sang-Ho Lee & Iltae Kim, 2000. "Self-Selection and Optimal Nonlinear Effluent Charges," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(1), pages 1-14, May.
  11. Acharyya, Rajat & Banerjee, Swapnendu, 2012. "On tariff and quality innovation in a market with discrete preferences," Economic Modelling, Elsevier, vol. 29(3), pages 917-925.
  12. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
  13. Susanne Kremhelmer & Hans Zenger, 2004. "Advertising and the Media," Industrial Organization 0403003, EconWPA.
  14. Ida Ferrara & Charles Plourde, 1998. "Refillable Versus Non-Refillable Containers The Impact Of Regulatory Measures On Packaging Mix And Quality Choices," Working Papers 1998_03, York University, Department of Economics.
  15. Kremhelmer, Susanne & Zenger, Hans, 2008. "Advertising and the screening role of mass media," Information Economics and Policy, Elsevier, vol. 20(2), pages 107-119, June.
  16. Ida Ferrara, 2007. "Automobile quality choice under pollution control regulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 353-372, November.
  17. Kremhelmer, Susanne, 2004. "Fairness, Property Rights, and the Market for Media," Munich Dissertations in Economics 2521, University of Munich, Department of Economics.
  18. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, School of Economics and Finance, revised 01 Jul 2008.
  19. Fischer, Carolyn, 2004. "Who Pays for Energy Efficiency Standards?," Discussion Papers dp-04-11, Resources For the Future.
  20. Christopher Coyne & Justin Isaacs & Jeremy Schwartz, 2010. "Entrepreneurship and the taste for discrimination," Journal of Evolutionary Economics, Springer, vol. 20(4), pages 609-627, August.
  21. Fischer, Carolyn, 2005. "On the importance of the supply side in demand-side management," Energy Economics, Elsevier, vol. 27(1), pages 165-180, January.

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