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The Determinants Of The Quantity-Quality Balance In Monopoly

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  • HUGH SIBLY

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 customer's 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. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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  • Hugh Sibly, 2009. "The Determinants Of The Quantity-Quality Balance In Monopoly ," Australian Economic Papers, Wiley Blackwell, vol. 48(1), pages 65-79, March.
  • Handle: RePEc:bla:ausecp:v:48:y:2009:i:1:p:65-79
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    References listed on IDEAS

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    1. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
    2. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    3. David S. Sibley & Padmanabhan Srinagesh, 1997. "Multiproduct Nonlinear Pricing with Multiple Taste Characteristics," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 684-707, Winter.
    4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    5. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    6. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    7. David Levhari & Yoram Peles, 1973. "Market Structure, Quality and Durability," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 235-248, Spring.
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    Cited by:

    1. 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.
    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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