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Quality Distorsion By A Discriminating Monopolist

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  • SRINAGESH, P.
  • BRADBURD, R.M.

Abstract

The standard model of monopolistic imperfect quality discrimination involving consumer self-selection has shown that no distortion occurs at the highest quality level, while all lower quality levels are degraded in order to maintain profitable market segmentation. This result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality. The paper develops a reasonable model in which the standard assumption is not satisfied, and this alternative model yields vastly different conclusions regarding the form of quality distortion. In particular, quality may be enhanced, not degraded, to maintain profitable market segmentation. Copyright 1989 by American Economic Association.

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Bibliographic Info

Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 117.

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Length: 21 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:wil:wileco:117

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Keywords: discrimination ; monopolies ; household ; production;

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Cited by:
  1. Ida Ferrara, 2007. "Automobile quality choice under pollution control regulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 353-372, November.
  2. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
  3. Ferrara, Ida & Plourde, Charles, 2003. "Refillable versus non-refillable containers: the impact of regulatory measures on packaging mix and quality choices," Resources Policy, Elsevier, vol. 29(1-2), pages 1-13.
  4. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics Discussion Papers 2007-2, Kiel Institute for the World Economy.
  5. Inderst, Roman, 2004. "Contractual distortions in a market with frictions," Journal of Economic Theory, Elsevier, vol. 116(1), pages 155-176, May.
  6. Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Diagnosing Efficiency of Distortion in Discrete Screening," EERC Working Paper Series 08/02e, EERC Research Network, Russia and CIS.
  7. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
  8. Mahenc, Philippe & Podesta, Marion, 2012. "The monopolist is not the best environmentalist’s best friend: An example," Economics Letters, Elsevier, vol. 115(3), pages 379-382.
  9. Yasuji Otsuka & Bradley Braun, 2003. "Price Cap Regulation in the Cable Television Industry: Why was the Demand Stagnant?," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 41-55, March.
  10. Kremhelmer, Susanne, 2004. "Fairness, Property Rights, and the Market for Media," Munich Dissertations in Economics 2521, University of Munich, Department of Economics.
  11. Fischer, Carolyn, 2004. "Who Pays for Energy Efficiency Standards?," Discussion Papers dp-04-11, Resources For the Future.
  12. Sang-Ho Lee & Iltae Kim, 2000. "Self-Selection and Optimal Nonlinear Effluent Charges," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(1), pages 1-14, May.
  13. Susanne Kremhelmer & Hans Zenger, 2004. "Advertising and the Media," Industrial Organization 0403003, EconWPA.
  14. Sibly, Hugh, 2008. "Quality Versus Quantity in Vertically Differentiated Products Under Non-Linear Pricing," Working Papers 7335, University of Tasmania, School of Economics and Finance, revised 01 Jun 2008.
  15. Acharyya, Rajat & Banerjee, Swapnendu, 2012. "On tariff and quality innovation in a market with discrete preferences," Economic Modelling, Elsevier, vol. 29(3), pages 917-925.
  16. Lacourbe, Paul, 2012. "A model of product line design and introduction sequence with reservation utility," European Journal of Operational Research, Elsevier, vol. 220(2), pages 338-348.
  17. Fischer, Carolyn, 2005. "On the importance of the supply side in demand-side management," Energy Economics, Elsevier, vol. 27(1), pages 165-180, January.
  18. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, School of Economics and Finance, revised 01 Jul 2008.
  19. de Palma, Andre & Leruth, Luc, 1996. "Variable willingness to pay for network externalities with strategic standardization decisions," European Journal of Political Economy, Elsevier, vol. 12(2), pages 235-251, September.
  20. Kremhelmer, Susanne & Zenger, Hans, 2008. "Advertising and the screening role of mass media," Information Economics and Policy, Elsevier, vol. 20(2), pages 107-119, June.
  21. Christopher Coyne & Justin Isaacs & Jeremy Schwartz, 2010. "Entrepreneurship and the taste for discrimination," Journal of Evolutionary Economics, Springer, vol. 20(4), pages 609-627, August.

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