Vertical Product Differentiation with Linear Pricing
AbstractThis paper considers a monopolist that conducts vertical product differentiation. Previous analyses that assume customers have unit demand or firms conduct non-linear pricing. In contrast to these studies customers purchase multiple units at a linear price. Customers differ in their income and preferences, particularly their willingness to substitute between quantity and quality. The model distinguishes those aspects of customer demand that are sources of vertical differentiation (income and preferences) from those aspects that cause quality distortion. It is demonstrated that under uniform ordering vertical differentiation only causes quality distortion when consumer demand is such that there is a material difference in the mark-up of different varieties. Under non-uniform ordering a variety of patterns of quality distortion are possible.
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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: 50 pages
Date of creation: 01 Jul 2008
Date of revision: 01 Jul 2008
Publication status: Published by the University of Tasmania. Discussion paper 2008-05
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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