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Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening

  • Matthews, Steven
  • Moore, John

New ways of handling incentive constraints between nonadjacent types of buyer are used to solve a monopoly screening problem. The monopoly wishes to price discriminate by designing a product line of goods distinguished by different quality, warranty, and price attributes. The multidimensionality of the line causes the local approach usually taken to fail. The optimal product line is nevertheless fully characterized. Contrary to the result always obtained in simple models, attributes need not be monotone in buyer type, e.g., more eager types sometimes receive lower quality. Copyright 1987 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 55 (1987)
Issue (Month): 2 (March)
Pages: 441-67

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Handle: RePEc:ecm:emetrp:v:55:y:1987:i:2:p:441-67
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  1. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  2. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 3-35.
  3. Steven A. Matthews, 1981. "Selling to Risk Averse Buyers with Unobservable Tastes," Discussion Papers 480S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
  5. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-83, March.
  6. Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
  7. Harris, Milton & Raviv, Artur, 1981. "A Theory of Monopoly Pricing Schemes with Demand Uncertainty," American Economic Review, American Economic Association, vol. 71(3), pages 347-65, June.
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  9. Thomas Palfrey & Thomas Romer, 1983. "Warranties, Performance, and the Resolution of Buyer-Seller Disputes," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 97-117, Spring.
  10. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  12. Courville, Leon & Hausman, Warren H, 1979. "Warranty Scope and Reliability under Imperfect Information and Alternative Market Structures," The Journal of Business, University of Chicago Press, vol. 52(3), pages 361-78, July.
  13. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
  14. Roberts, Kevin W S, 1979. "Welfare Considerations of Nonlinear Pricing," Economic Journal, Royal Economic Society, vol. 89(353), pages 66-83, March.
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  17. Richard Arnott & Joseph E. Stiglitz, 1985. "Randomization with Asymmetric Information a Simplified Exposition," Working Papers 594, Queen's University, Department of Economics.
  18. Geoffrey Heal, 1977. "Guarantees and Risk-Sharing," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 549-560.
  19. A. Michael Spence, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Oxford University Press, vol. 47(5), pages 821-841.
  20. Leonard J. Mirman & David Sibley, 1980. "Optimal Nonlinear Prices for Multiproduct Monopolies," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 659-670, Autumn.
  21. Raymond Chiang & Chester S. Spatt, 1982. "Imperfect Price Discrimination and Welfare," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 155-181.
  22. Michael Spence, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 561-572.
  23. Avishay Braverman & J. Luis Guasch & Steven Salop, 1983. "Defects in Disneyland: Quality Control as a Two-Part Tariff," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 121-131.
  24. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
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