Price discrimination and quality improvement
AbstractThis paper models quality improvements when multiple quality levels can sell, owing to differences in consumers' valuations of quality improvements. Firms can collude to price discriminate, so that consumers with high valuations pay a price premium, while others receive a quality level below the highest available. Imposing minimum quality standards or price ceilings can ensure that only the highest quality level of each product is sold. Such intervention reduces the quality-adjusted price paid by consumers but also reduces the incentives for firms to innovate. When enough consumers have high valuations, such intervention must be welfare reducing, owing to reduced innovation.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 34 (2001)
Issue (Month): 2 (May)
Contact details of provider:
Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
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Find related papers by JEL classification:
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
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- Chung Tse, 2001. "The distribution of demand, market structure, and investment in technology," Journal of Economics, Springer, vol. 73(3), pages 275-297, October.
- Foellmi, Reto & Zweimüller, Josef, 2005.
"Income Distribution and Demand-Induced Innovations,"
CEPR Discussion Papers
4985, C.E.P.R. Discussion Papers.
- Reto Foellmi & Josef Zweimüller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
- Besancenot, Damien & Vranceanu, Radu, 2004. "Quality and price dispersion in an equilibrium search model," Journal of Economics and Business, Elsevier, vol. 56(2), pages 99-116.
- Eduardo Correia de Souza & Jorge Chami Batista, 2007. "Replacement Cycles, Income Distribution, And Dynamic Price Discrimination," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 019, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Karen Dury & Özlem Oomen, 2007. "The real exchange rate and quality improvements," Bank of England working papers 320, Bank of England.
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