Uniform Pricing and Product Innovation

Matteucci Giorgio and Reverberi Pierfrancesco ()
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Matteucci Giorgio: Dipartimento di Ingegneria informatica automatica e gestionale Antonio Ruberti, Sapienza – Università di Roma, Via Ariosto, 25 – 00185Roma, Italia
Reverberi Pierfrancesco: Dipartimento di Ingegneria informatica automatica e gestionale Antonio Ruberti, Sapienza – Università di Roma, Via Ariosto, 25 – 00185Roma, Italia

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 1, 6

Abstract: We consider the rationale for imposing uniform pricing (UP) on a monopolist in a two-market model with endogenous quality. In contrast to the literature, we find that UP may yield higher quality than third-degree price discrimination (PD). This occurs when the demand dispersion between markets is sufficiently decreasing with quality. A simple test for a higher quality under UP is to check whether an increase in quality reduces the price differential between markets under PD. In this case, a higher quality under UP is an effective substitute for PD to extract consumer surplus. When the demand dispersion is small enough, a higher quality under UP increases social welfare relative to PD.

Keywords: monopoly; third-degree price discrimination; uniform pricing; endogenous quality; R&D investment (search for similar items in EconPapers)
JEL-codes: D42 L12 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejte-2016-0110

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