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Product Quality With Heterogeneous Consumers and Linear Pricing
Author(s) -
Sibly Hugh
Publication year - 2017
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12105
Subject(s) - product differentiation , quality (philosophy) , nonlinear pricing , product (mathematics) , distortion (music) , microeconomics , business , variety (cybernetics) , economics , taste , pricing strategies , industrial organization , marketing , computer science , mathematics , telecommunications , amplifier , philosophy , chemistry , geometry , food science , epistemology , bandwidth (computing) , artificial intelligence , cournot competition
This paper considers a linear‐pricing monopolist that conducts vertical product differentiation. Previous analyses consider customers who either have unit demand or firms who conduct nonlinear pricing. In this paper, customers’ opportunity cost of time generates a demand for quality. Customers differ in either their demand, income or taste for quality. Differences in income and taste for quality are sources of vertical differentiation. The presence of quality distortion and the variety that may exhibit it are dependent on the functional form of the customer types’ demand.