Quality Versus Quantity in Vertically Differentiated Products Under Non-Linear Pricing
Quality is defined as being skewed when the marginal rate of substitution (MRS) between quantity and quality differs from the marginal rate of transformation (MRT). This definition is used to assess the balance of quality and quantity in each variety of good produced by a monopolist using non-linear pricing, where each variety can be differentiated using both quantity and quality. A variety’s decisive customers face a binding self-selection or participation constraint. Skewing of a variety’s quality occurs when there is a difference between its decisive customer(s) MRS and that of (i) its non-decisive customers (ii) the decisive customers of ‘adjacent varieties’. Some important special cases are identified and analysed.
|Date of creation:||01 Jun 2008|
|Date of revision:||01 Jun 2008|
|Publication status:||Published by the University of Tasmania. Discussion paper 2008-03.|
|Contact details of provider:|| Postal: Private Bag 85, Hobart, Tasmania 7001|
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
Web page: http://www.utas.edu.au/business-and-economics
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.:
- Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
- Donnenfeld, Shabtai & White, Lawrence J, 1990. "Quality Distortion by a Discriminating Monopolist: Comment," American Economic Review, American Economic Association, vol. 80(4), pages 941-45, September.
- McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
- David Levhari & Yoram Peles, 1973. "Market Structure, Quality and Durability," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 235-248, Spring.
- Kim, Joo-Han & Kim, Jae-Cheol, 1996. "Quality choice of multiproduct monopolist and spill-over effect," Economics Letters, Elsevier, vol. 52(3), pages 345-352, September.
- Robert B. Ekelund, 1970. "Price Discrimination and Product Differentiation in Economic Theory: An Early Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 268-278.
- Srinagesh, P. & Bradburd, R.M., 1988.
"Quality Distorsion By A Discriminating Monopolist,"
Department of Economics Working Papers
117, Department of Economics, Williams College.
- Donnenfeld, Shabtai & White, Lawrence J, 1988. "Product Variety and the Inefficiency of Monopoly," Economica, London School of Economics and Political Science, vol. 55(219), pages 393-401, August.
- Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
- Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
- Schmalensee, Richard, 1979. "Market Structure, Durability, and Quality: A Selective Survey," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 177-96, April.
- Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-94, December.
- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Srinagesh, Padmanabhan & Bradburd, Ralph & Koo, Hui-Wen, 1992. "Bidirectional Distortion in Self-Selection Problems," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 223-28, June.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
When requesting a correction, please mention this item's handle: RePEc:tas:wpaper:7335. 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: (Vitali Alexeev)
If references are entirely missing, you can add them using this form.