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Product Variety and the Inefficiency of Monopoly


  • Donnenfeld, Shabtai
  • White, Lawrence J


In this note, the authors extend earlier work that examined the distortions in product quality created by a monopolist selling to consumers with different and unobservable tastes. When consumers have differing absolute and marginal willingness to pay for quality, they demonstrate that the monopolist may find it profitable to distort quality either at the low end or at the high end of a quality array. This latter result has not previously been demonstrated. The authors also provide intuitive comparative statics and discuss policy implications. Copyright 1988 by The London School of Economics and Political Science.

Suggested Citation

  • Donnenfeld, Shabtai & White, Lawrence J, 1988. "Product Variety and the Inefficiency of Monopoly," Economica, London School of Economics and Political Science, vol. 55(219), pages 393-401, August.
  • Handle: RePEc:bla:econom:v:55:y:1988:i:219:p:393-401

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    References listed on IDEAS

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    2. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    3. Ramsès H. Abul Naga & Enrico Bolzani, 2006. "Poverty and Permanent Income: A Methodology for Cross-Section Data," Annals of Economics and Statistics, GENES, issue 81, pages 195-223.
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    9. Jacques Silber, 1998. "On Inequality in Consumption Expenditures. The Case of Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 545-564, December.
    10. Christophe Kolodziejczyk, 2005. "Les Suisses sont-ils prudents?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(I), pages 129-164, March.
    11. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    12. Abul Naga, Ramses H. & Burgess, Robin, 1997. "Prediction and determination of household permanent income," LSE Research Online Documents on Economics 2143, London School of Economics and Political Science, LSE Library.
    13. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166 Elsevier.
    14. Russell Davidson & Jean-Yves Duclos, 2000. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Econometrica, Econometric Society, vol. 68(6), pages 1435-1464, November.
    15. Attfield, C L F, 1976. "Estimation of the Structural Parameters in a Permanent Income Model," Economica, London School of Economics and Political Science, vol. 43(171), pages 247-254, August.
    16. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-481, March.
    17. Musgrove, Philip, 1979. "Permanent Household Income and Consumption in Urban South America," American Economic Review, American Economic Association, vol. 69(3), pages 355-368, June.
    18. Daniel T. Slesnick, 1998. "Empirical Approaches to the Measurement of Welfare," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2108-2165, December.
    19. Davies, James & Hoy, Michael, 1995. "Making Inequality Comparisons When Lorenz Curves Intersect," American Economic Review, American Economic Association, vol. 85(4), pages 980-986, September.
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    21. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
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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. Fischer, Carolyn, 2005. "On the importance of the supply side in demand-side management," Energy Economics, Elsevier, vol. 27(1), pages 165-180, January.
    3. L. Lambertini, 1998. "Does Monopoly Undersupply Product Quality?," Working Papers 317, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Plourde, Charles & Bardis, Vassilios, 1999. "Fuel economy standards in a model of automobile quality," Energy Economics, Elsevier, vol. 21(4), pages 309-319, August.
    5. Rasha Ahmed & Kathleen Segerson, 2006. "Collective Voluntary Agreements and the Production of Less Polluting Products," Working papers 2006-18, University of Connecticut, Department of Economics, revised May 2007.
    6. Madhu Khanna & George Deltas & Donna Harrington, 2009. "Adoption of Pollution Prevention Techniques: The Role of Management Systems and Regulatory Pressures," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 85-106, September.
    7. Tian Xia & Richard Sexton, 2010. "Brand or Variety Choices and Periodic Sales as Substitute Instruments for Monopoly Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(4), pages 333-349, June.
    8. repec:eee:resene:v:49:y:2017:i:c:p:132-149 is not listed on IDEAS
    9. 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.
    10. Fischer, Carolyn, 2004. "Who Pays for Energy Efficiency Standards?," Discussion Papers dp-04-11, Resources For the Future.
    11. 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.
    12. 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.

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