Industrial Technology Boundary, Product Quality Choice, and Market Segmentation

Ma Haoxing ()
Additional contact information
Ma Haoxing: Osaka School of International Public Policy, Osaka University, Machikaneyama 1-31, Toyonaka, Osaka, 560-0043, Japan

The B.E. Journal of Economic Analysis & Policy, 2024, vol. 24, issue 2, 397-424

Abstract: This paper studies how firms in a duopoly market choose product qualities when facing two types of consumers: high-end consumers value quality more than low-end consumers. Firms’ highest possible quality (referred to as industrial technology boundary) is determined by an industrial common technology. I consider price competition and show that in equilibrium, an increase in the technology boundary can induce a decrease in the equilibrium quality of one firm. In this case, the firms enlarge their quality difference, triggering a market segmentation. In this market segmentation, the firm with a lower quality does not serve the high-end consumers and obtains higher profits from the low-end consumers, whereas the firm with a higher quality supplies both types of consumers and obtains higher profits as well. This market segmentation causes additional mismatch costs for high-end consumers, therefore lowering both consumer and social surplus.

Keywords: quality choice; market segmentation; pricing strategy; social surplus (search for similar items in EconPapers)
JEL-codes: L11 L13 L22 M21 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejeap-2022-0304 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:24:y:2024:i:2:p:397-424:n:1

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejeap/html

DOI: 10.1515/bejeap-2022-0304

Access Statistics for this article

The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig

More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter
Bibliographic data for series maintained by Peter Golla ().