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Price discrimination and quality improvement

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Author Info
Amy Jocelyn Glass

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Abstract

This paper models quality improvements when multiple quality levels can sell, owing to differences in consumers' valuations of quality improvements. Firms can collude to price discriminate, so that consumers with high valuations pay a price premium, while others receive a quality level below the highest available. Imposing minimum quality standards or price ceilings can ensure that only the highest quality level of each product is sold. Such intervention reduces the quality-adjusted price paid by consumers but also reduces the incentives for firms to innovate. When enough consumers have high valuations, such intervention must be welfare reducing, owing to reduced innovation.

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File URL: http://economics.ca/cgi/xms?jab=v34n2/12.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 34 (2001)
Issue (Month): 2 (May)
Pages: 549-569
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Handle: RePEc:cje:issued:v:34:y:2001:i:2:p:549-569

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Keywords:

Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

Cited by:
(explanations, 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.)

  1. Foellmi, Reto & Zweimüller, Josef, 2005. "Income Distribution and Demand-Induced Innovations," CEPR Discussion Papers 4985, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Eduardo Correia de Souza & Jorge Chami Batista, 2007. "Replacement Cycles, Income Distribution, And Dynamic Price Discrimination," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 019, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  3. Karen Dury & Özlem Oomen, . "The real exchange rate and quality improvements," Bank of England working papers 320, Bank of England. [Downloadable!]
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This page was last updated on 2009-10-28.

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