Market Segmentation by Price-Quality Schedules: Some Evidence from Automobiles
Discrimination among heterogeneous buyers of a product is possible through the use of multiple quality variants. This article quantifies various implications of the standard Mussa-Rosen model of price/quality discrimination as applied to the U.S. automobile industry. It demonstrates that the price-quality variants of a major manufacturer indeed segment the market as predicted by the model. Distortions in the range and nature of products offered, in their prices, and in the resulting consumer surplus in the automobile market are measured and shown to be significant. Copyright 1992 by University of Chicago Press.
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