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The Determinants of the Quantity-Quality Balance in Monopoly

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Author Info

  • Hugh Sibly

    ()
    (School of Economics and Finance, University of Tasmania)

Abstract

This paper describes how a monopolist manipulates the balance of quantity and quality in order to increase revenue when its customers treat quantity and quality as substitutes. This "skewing" of quality depends on the characteristics of customers' demand for quality. Customers differ in demand for quality, because they differ in either (i) their preferences and/or (ii) their time cost per unit. The monopolist is constrained to supply the same quality of good to all customers. The price and quality per unit are described under the assumption the monopolist (i) profit maximises; (ii) maximises social welfare subject to a profit constraint. The determinants of the skewing of quantity and quality are found under third degree price discrimination and uniform pricing.

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File URL: http://eprints.utas.edu.au/2511/
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 2511.

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Length: 26 pages
Date of creation: Nov 2007
Date of revision:
Publication status: Published by the University of Tasmania School of Economics and Finance as part of its working paper series.
Handle: RePEc:tas:wpaper:2511

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Postal: Private Bag 85, Hobart, Tasmania 7001
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
Web page: http://www.utas.edu.au/economics-finance/
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Related research

Keywords: monopolist pricing; quality.;

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Cited by:
  1. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, School of Economics and Finance, revised 01 Jul 2008.
  2. Sibly, Hugh, 2012. "A decomposition of monopolistic quality distortion," Research in Economics, Elsevier, vol. 66(1), pages 97-105.
  3. Rothbauer, Julia & Sieg, Gernot, 2010. "Quality standards for passenger trains: Political majorities and environmental costs," Economics Department Working Paper Series 8, Technische Universit├Ąt Braunschweig, Economics Department.

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