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

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  • Guy Ho Wang

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]

Suggested Citation

  • Guy Ho Wang, 2000. "On The Dynamic Incentive of Price-Quality Differentiation By A Monopolist Firm," International Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 33-45.
    • Handle: RePEc:taf:intecj:v:14:y:2000:i:1:p:33-45
    DOI: 10.1080/10168730000000002
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    References listed on IDEAS

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    1. 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 441-467, March.
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