Pricing Damaged Goods
AbstractCompanies with market power occasionally engage in intentional quality reduction of a portion of their output as a means of offering two qualities of goods for the purpose of price discrimination, even absent a cost saving. This paper provides an exact characterization in terms of marginal revenues of when such a strategy is profitable, which, remarkably, does not depend on the distribution of customer valuations, but only on the value of the damaged product relative to the undamaged product. In particular, when the damaged product provides a constant proportion of the value of the full product, selling a damaged good is unprofitable. One quality reduction produces higher profits than another if the former has higher marginal revenue than the latter. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.
Volume (Year): 1 (2007)
Issue (Month): 1 ()
Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
- Srinagesh, Padmanabhan & Bradburd, Ralph M, 1989.
"Quality Distortion by a Discriminating Monopolist,"
American Economic Review,
American Economic Association, vol. 79(1), pages 96-105, March.
- David P. Myatt & Justin P. Johnson, 2002.
"Multiproduct Quality Competition: Fighting Brands and Product Line Pruning,"
Economics Series Working Papers
105, University of Oxford, Department of Economics.
- Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
- Jong-Hee Hahn, 2006.
"Damaged Durable Goods,"
RAND Journal of Economics,
The RAND Corporation, vol. 37(1), pages 121-133, Spring.
- repec:att:wimass:9508 is not listed on IDEAS
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
- Justin P. Johnson & David P. Myatt, 2006. "Multiproduct Cournot oligopoly," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 583-601, 09.
- Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-29, June.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Jong‐Hee Hahn, 2006. "Damaged durable goods," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 121-133, 03.
- Raymond J. Deneckere & R. Preston McAfee, 1996.
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 5(2), pages 149-174, 06.
- Kim, Jong Seok, 1987. "Optimal Price-Quality Schedules and Sustainability," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 231-44, December.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Jing, Bing, 2007. "Network externalities and market segmentation in a monopoly," Economics Letters, Elsevier, vol. 95(1), pages 7-13, April.
- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
- Lachapelle, A. & Santambrogio, F., 2011. "On the strategic use of risk and undesirable goods in multidimensional screening," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 698-705.
- McCalman, Phillip, 2010. "Trade policy in a "super size me" world," Journal of International Economics, Elsevier, vol. 81(2), pages 206-218, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.