Product Variety and the Inefficiency of Monopoly

Shabtai Donnenfeld and Lawrence J White

Economica, 1988, vol. 55, issue 219, pages 393-401

Abstract: In this note, the authors extend earlier work that examined the distortions in product quality created by a monopolist selling to consumers with different and unobservable tastes. When consumers have differing absolute and marginal willingness to pay for quality, they demonstrate that the monopolist may find it profitable to distort quality either at the low end or at the high end of a quality array. This latter result has not previously been demonstrated. The authors also provide intuitive comparative statics and discuss policy implications. Copyright 1988 by The London School of Economics and Political Science.

Date: 1988
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