On Tariff, Quality Choice and Innovation in a Vertically Differentiated Monopoly with Discrete Preferences

Rajat Acharyya and Swapnendu Banerjee ()
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Rajat Acharyya: Jadavpur University
Swapnendu Banerjee: National University of Singapore

Departmental Working Papers from National University of Singapore, Department of Economics

Abstract: In a vertically differentiated monopolistic framework with discrete preferences we examine how protecting the low-quality segment raises the incentive for quality innovation. We show how the monopolist facing competitive imports, might fail to exert its complete monopoly power even if there is prohibitive tariff on both the high and low quality segment of the market. On the other hand, given non prohibitive tariff on the high quality segment, the potential gain for the monopolist exhausts at a level much below the prohibitive low-quality tariff level. Also a sufficiently low tariff on the high quality product can force the monopolist to produce the first best qualities irrespective of the tariff level on the low quality product

Keywords: Protection; Quality Innovation; Discrete Types; Monopoly (search for similar items in EconPapers)
JEL-codes: F13 L12 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ino, nep-mic and nep-tid
Date: 2005
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