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The Determinants of the Quantity-Quality Balance in Monopoly

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  • Hugh Sibly

    (School of Economics and Finance, University of Tasmania)

Abstract

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.

Suggested Citation

  • Hugh Sibly, 2007. "The Determinants of the Quantity-Quality Balance in Monopoly," Working Papers 2511, University of Tasmania, Tasmanian School of Business and Economics.
    • Handle: RePEc:tas:wpaper:2511
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    File URL: http://eprints.utas.edu.au/2511/
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    Cited by:

    1. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Jul 2008.
    2. Sibly, Hugh, 2012. "A decomposition of monopolistic quality distortion," Research in Economics, Elsevier, vol. 66(1), pages 97-105.
    3. Rothbauer, Julia & Sieg, Gernot, 2010. "Quality standards for passenger trains: Political majorities and environmental costs," Economics Department Working Paper Series 8, Technische Universität Braunschweig, Economics Department.

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