Monopolistic Competition and Exclusive Quality

Ortiz-Ospina Esteban ()
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Ortiz-Ospina Esteban: Blavatnik School of Government, University of Oxford, Radcliffe Observatory Quarter, Oxford, OX2 6GG, United Kingdom of Great Britain and Northern Ireland

The B.E. Journal of Economic Analysis & Policy, 2017, vol. 17, issue 2, 14

Abstract: In this paper I adapt a classic model of monopolistic competition where products are differentiated by quality, in order to study a market in which high-quality products can only be enjoyed by users with sufficient ability. Casting the model in the context of higher education – where selective colleges pledge quality by excluding low-ability students –, I show that there are two equilibrium market segmentations: one in which highly selective colleges serve high-income high-ability students, and another in which highly selective colleges are cheaper than the less selective competitors that cater to low-ability high-income students. I provide an example to illustrate the welfare implications of these two market configurations.

Keywords: monopolistic competition; product differentiation; higher education; tuition fees (search for similar items in EconPapers)
JEL-codes: D43 H42 I22 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/bejeap-2016-0036

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