On The Dynamic Incentive of Price-Quality Differentiation By A Monopolist Firm
When consumers are theterogeneous in their preferences about the quality of a product, a monopolist firm can take advantage of this heterogeneity, thereby, increase the profit by offering different price-quality pairs. This business practice is called the second degree price discrimination or non-linear pricing. This paper extends the static non-linear pricing problem into the dynamic one where the monopolist firm cannot precommit in advance. The main result is that the dynamic non-linear pricing outcome is the same as the static non-linear pricing outcome so that additional opportunities to transact neither benefits nor hurts the monopolist firm. [L12]
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Volume (Year): 14 (2000)
Issue (Month): 1 ()
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References listed on IDEAS
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- Matthews, Steven & Moore, John, 1987.
"Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening,"
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- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, December.
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- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
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