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Quality Distortion by a Discriminating Monopolist

Author

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  • Srinagesh, Padmanabhan
  • Bradburd, Ralph 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.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aecrev:v:79:y:1989:i:1:p:96-105
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    Cited by:

    1. 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.
    2. 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.
    3. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Jul 2008.
    4. Ida Ferrara, 2007. "Automobile quality choice under pollution control regulation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 38(3), pages 353-372, November.
    5. 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.
    6. 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.
    7. 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.
    8. Fischer, Carolyn, 2005. "On the importance of the supply side in demand-side management," Energy Economics, Elsevier, vol. 27(1), pages 165-180, January.
    9. McAfee, R. Preston, 2007. "Pricing Damaged Goods," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-19.
    10. Sang-Ho Lee & Iltae Kim, 2000. "Self-Selection and Optimal Nonlinear Effluent Charges," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(1), pages 1-14, May.
    11. Inderst, Roman, 2004. "Contractual distortions in a market with frictions," Journal of Economic Theory, Elsevier, vol. 116(1), pages 155-176, May.
    12. Inderst, Roman, 2002. "Contract design and bargaining power," Economics Letters, Elsevier, vol. 74(2), pages 171-176, January.
    13. Kala Krishna, 1990. "Export Restraints With Imperfect Competition: A Selective Survey," NBER Working Papers 3244, National Bureau of Economic Research, Inc.
    14. 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.
    15. repec:eee:resene:v:49:y:2017:i:c:p:132-149 is not listed on IDEAS
    16. Susanne Kremhelmer & Hans Zenger, 2004. "Advertising and the Media," Industrial Organization 0403003, EconWPA.
    17. Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Diagnosing Efficiency of Distortion in Discrete Screening," EERC Working Paper Series 08/02e, EERC Research Network, Russia and CIS.
    18. Nicholas Economides & Lawrence J. White, 1993. "One-Way Networks, Two-Way Networks, Compatibility, and Antitrust," Working Papers 93-14, New York University, Leonard N. Stern School of Business, Department of Economics.
    19. Fischer, Carolyn, 2004. "Who Pays for Energy Efficiency Standards?," Discussion Papers dp-04-11, Resources For the Future.
    20. 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.
    21. Nicholas Economides, 1995. "The Incentive of a Monopolist to Provide All Goods," Working Papers 95-09, New York University, Leonard N. Stern School of Business, Department of Economics.
    22. Sibly, Hugh, 2008. "Quality Versus Quantity in Vertically Differentiated Products Under Non-Linear Pricing," Working Papers 7335, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Jun 2008.
    23. 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.
    24. Kremhelmer, Susanne, 2004. "Fairness, Property Rights, and the Market for Media," Munich Dissertations in Economics 2521, University of Munich, Department of Economics.

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