Trickle-Down Technology and Screening of a Durable Goods Monopolist
Woody Chih-Yi Chi and
Journal of Reviews on Global Economics, 2015, vol. 4, 69-75
We show that when it takes time for a durable goods monopolist to make its high-end new technology accessible to low-end market (the trickle-down technology constraint), the monopolist's high-end product might have a higher-than-optimum quality. This result differs from conventional screening models, in which the qualities of non-durable goods supplied by a monopolist never exceed the optimum, and only consumers with the highest valuation consume the efficient quality. In another literature discussing a durable goods monopolist who delays the introduction of low-end product as a marketing strategy, but not due to the trickle-down constraint, the qualities will not exceed the optimum either. Our results show that the trickle-down constraint will make the monopolist chooses a higher-than-optimum quality when the difference of the valuations of high demand and low demand consumers are in certain ranges. The intuition follows Spence (1975): the efficient quality is determined by the marginal cost and the average of all consumersâ€™ marginal valuations, while the monopolist chooses quality such that the marginal cost equals the marginal consumerâ€™s marginal valuation.
Keywords: MacroeconomicDurable goods monopoly; Coase problem; trickle-down technology; screening (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:lif:jrgelg:v:4:y:2015:p:69-75
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