Pricing Damaged Goods
Companies with market power occasionally engage in intentional quality reduction of a portion of their output as a means of offering two qualities of goods for the purpose of price discrimination, even absent a cost saving. This paper provides an exact characterization in terms of marginal revenues of when such a strategy is profitable, which, remarkably, does not depend on the distribution of customer valuations, but only on the value of the damaged product relative to the undamaged product. In particular, when the damaged product provides a constant proportion of the value of the full product, selling a damaged good is unprofitable. One quality reduction produces higher profits than another if the former has higher marginal revenue than the latter.
Volume (Year): 1 (2007)
Issue (Month): ()
|Contact details of provider:|| Postal: Kiellinie 66, D-24105 Kiel|
Phone: +49 431 8814-1
Fax: +49 431 8814528
Web page: http://www.economics-ejournal.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hahn, Jong-Hee, 2003.
"Damaged Durable Goods,"
Royal Economic Society Annual Conference 2003
98, Royal Economic Society.
- Justin P. Johnson & David P. Myatt, 2006.
"Multiproduct Cournot oligopoly,"
RAND Journal of Economics,
RAND Corporation, vol. 37(3), pages 583-601, 09.
- Deneckere, R. & McAfee, R.P., 1995.
9508, Wisconsin Madison - Social Systems.
- repec:rje:randje:v:37:y:2006:1:p:121-133 is not listed on IDEAS
- Jing, Bing, 2007. "Network externalities and market segmentation in a monopoly," Economics Letters, Elsevier, vol. 95(1), pages 7-13, April.
- Srinagesh, P. & Bradburd, R.M., 1988.
"Quality Distorsion By A Discriminating Monopolist,"
Department of Economics Working Papers
117, Department of Economics, Williams College.
- Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
- Justin P. Johnson & David P. Myatt, 2003.
"Multiproduct Quality Competition: Fighting Brands and Product Line Pruning,"
American Economic Review,
American Economic Association, vol. 93(3), pages 748-774, June.
- David P. Myatt & Justin P. Johnson, 2002. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," Economics Series Working Papers 105, University of Oxford, Department of Economics.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Kim, Jong Seok, 1987. "Optimal Price-Quality Schedules and Sustainability," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 231-44, December.
- Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1988. "The Multiproduct Firm, Quality Choice, and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 411-29, June.
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:5580. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.