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Uniform Pricing and Product Innovation

Author

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  • Matteucci Giorgio

    (Dipartimento di Ingegneria informatica automatica e gestionale Antonio Ruberti, Sapienza – Università di Roma, Via Ariosto, 25 – 00185Roma, Italia)

  • Reverberi Pierfrancesco

    (Dipartimento di Ingegneria informatica automatica e gestionale Antonio Ruberti, Sapienza – Università di Roma, Via Ariosto, 25 – 00185Roma, Italia)

Abstract

We consider the rationale for imposing uniform pricing (UP) on a monopolist in a two-market model with endogenous quality. In contrast to the literature, we find that UP may yield higher quality than third-degree price discrimination (PD). This occurs when the demand dispersion between markets is sufficiently decreasing with quality. A simple test for a higher quality under UP is to check whether an increase in quality reduces the price differential between markets under PD. In this case, a higher quality under UP is an effective substitute for PD to extract consumer surplus. When the demand dispersion is small enough, a higher quality under UP increases social welfare relative to PD.

Suggested Citation

  • Matteucci Giorgio & Reverberi Pierfrancesco, 2018. "Uniform Pricing and Product Innovation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-6, January.
    • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:1:p:6:n:11
    DOI: 10.1515/bejte-2016-0110
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    References listed on IDEAS

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    More about this item

    Keywords

    monopoly; third-degree price discrimination; uniform pricing; endogenous quality; R&D investment;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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