Quality Versus Quantity in Vertically Differentiated Products Under Non-Linear Pricing
AbstractQuality is defined as being skewed when the marginal rate of substitution (MRS) between quantity and quality differs from the marginal rate of transformation (MRT). This definition is used to assess the balance of quality and quantity in each variety of good produced by a monopolist using non-linear pricing, where each variety can be differentiated using both quantity and quality. A variety’s decisive customers face a binding self-selection or participation constraint. Skewing of a variety’s quality occurs when there is a difference between its decisive customer(s) MRS and that of (i) its non-decisive customers (ii) the decisive customers of ‘adjacent varieties’. Some important special cases are identified and analysed.
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Bibliographic InfoPaper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 7335.
Length: 53 pages
Date of creation: 01 Jun 2008
Date of revision: 01 Jun 2008
Publication status: Published by the University of Tasmania. Discussion paper 2008-03.
vertical differentiation; quality; non-linear pricing;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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