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Price discrimination and quality improvement

Author

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  • Amy Jocelyn Glass

Abstract

This paper models quality improvements when multiple quality levels can sell, owing to differences in consumers' valuations of quality improvements. Firms can collude to price discriminate, so that consumers with high valuations pay a price premium, while others receive a quality level below the highest available. Imposing minimum quality standards or price ceilings can ensure that only the highest quality level of each product is sold. Such intervention reduces the quality-adjusted price paid by consumers but also reduces the incentives for firms to innovate. When enough consumers have high valuations, such intervention must be welfare reducing, owing to reduced innovation.

Suggested Citation

  • Amy Jocelyn Glass, 2001. "Price discrimination and quality improvement," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 549-569, May.
  • Handle: RePEc:cje:issued:v:34:y:2001:i:2:p:549-569
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    Citations

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    Cited by:

    1. Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 941-960.
    2. Jorge Chami Batista & Yan Liu, 2016. "Export Quality And The Dynamics Of North-South Competition," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 108, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Boccard Nicolas & Wauthy Xavier Y., 2010. "Ensuring Quality Provision through Capacity Regulation under Price Competition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-27, October.
    4. Eduardo Correia de Souza & Jorge Chami Batista, 2015. "Replacement cycles, income distribution and dynamic price discrimination," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3292-3310, July.
    5. Chung Tse, 2001. "The distribution of demand, market structure, and investment in technology," Journal of Economics, Springer, vol. 73(3), pages 275-297, October.
    6. Souza, Eduardo Correia de & Batista, Jorge Chami, 2014. "Replacement Cycles, Income Distribution, and Dynamic Price Discrimination," Insper Working Papers wpe_331, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    7. Besancenot, Damien & Vranceanu, Radu, 2004. "Quality and price dispersion in an equilibrium search model," Journal of Economics and Business, Elsevier, vol. 56(2), pages 99-116.
    8. repec:bla:worlde:v:40:y:2017:i:1:p:207-232 is not listed on IDEAS
    9. Karen Dury & Özlem Oomen, 2007. "The real exchange rate and quality improvements," Bank of England working papers 320, Bank of England.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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