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

  • Steven Matthews
  • John Moore

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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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 661.

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Date of creation: Aug 1985
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Handle: RePEc:nwu:cmsems:661
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  1. 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.
  2. Chiang, Raymond & Spatt, Chester S, 1982. "Imperfect Price Discrimination and Welfare," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 155-81, April.
  3. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-83, March.
  4. 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.
  5. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
  6. Richard Arnott & Joseph E. Stiglitz, 1985. "Randomization with Asymmetric Information a Simplified Exposition," Working Papers 594, Queen's University, Department of Economics.
  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.
  8. J. A. Mirrlees, 1976. "Optimal Tax Theory: A Synthesis," Working papers 176, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
  10. 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.
  11. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 3-35, January.
  12. Heal, Geoffrey, 1977. "Guarantees and Risk-Sharing," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 549-60, October.
  13. Spence, A Michael, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 821-41, October.
  14. Braverman, Avishay & Guasch, J Luis & Salop, Steven, 1983. "Defects in Disneyland: Quality Control as a Two-Part Tariff," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 121-31, January.
  15. Stiglitz, Joseph E, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 407-30, October.
  16. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  17. Goldman, M Barry & Leland, Hayne E & Sibley, David S, 1984. "Optimal Nonuniform Prices," Review of Economic Studies, Wiley Blackwell, vol. 51(2), pages 305-19, April.
  18. Matthews, Steven A., 1983. "Selling to risk averse buyers with unobservable tastes," Journal of Economic Theory, Elsevier, vol. 30(2), pages 370-400, August.
  19. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
  20. Moore, John, 1984. "Global Incentive Constraints in Auction Design," Econometrica, Econometric Society, vol. 52(6), pages 1523-35, November.
  21. 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.
  22. Roberts, Kevin W S, 1979. "Welfare Considerations of Nonlinear Pricing," Economic Journal, Royal Economic Society, vol. 89(353), pages 66-83, March.
  23. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  24. Ekelund, Robert B, Jr, 1970. "Price Discrimination and Product Differentiation in Economic Theory: An Early Analysis," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 268-78, May.
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