The Determinants of the Quantity-Quality Balance in Monopoly
This paper describes how a monopolist manipulates the balance of quantity and quality in order to increase revenue when its customers treat quantity and quality as substitutes. This "skewing" of quality depends on the characteristics of customers' demand for quality. Customers differ in demand for quality, because they differ in either (i) their preferences and/or (ii) their time cost per unit. The monopolist is constrained to supply the same quality of good to all customers. The price and quality per unit are described under the assumption the monopolist (i) profit maximises; (ii) maximises social welfare subject to a profit constraint. The determinants of the skewing of quantity and quality are found under third degree price discrimination and uniform pricing.
|Date of creation:||Nov 2007|
|Date of revision:|
|Publication status:||Published by the University of Tasmania School of Economics and Finance as part of its working paper series.|
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