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On The Dynamic Incentive of Price-Quality Differentiation By A Monopolist Firm

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  • Guy Ho Wang
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    Abstract

    When consumers are theterogeneous in their preferences about the quality of a product, a monopolist firm can take advantage of this heterogeneity, thereby, increase the profit by offering different price-quality pairs. This business practice is called the second degree price discrimination or non-linear pricing. This paper extends the static non-linear pricing problem into the dynamic one where the monopolist firm cannot precommit in advance. The main result is that the dynamic non-linear pricing outcome is the same as the static non-linear pricing outcome so that additional opportunities to transact neither benefits nor hurts the monopolist firm. [L12]

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730000000002
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 14 (2000)
    Issue (Month): 1 ()
    Pages: 33-45

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    Handle: RePEc:taf:intecj:v:14:y:2000:i:1:p:33-45

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    1. Roberts, Kevin W S, 1979. "Welfare Considerations of Nonlinear Pricing," Economic Journal, Royal Economic Society, vol. 89(353), pages 66-83, March.
    2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    3. Spence, A Michael, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 821-41, October.
    4. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
    5. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-67, March.
    6. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
    7. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
    8. Wilson, Robert, 1991. "Multiproduct Tariffs," Journal of Regulatory Economics, Springer, vol. 3(1), pages 5-26, March.
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