On The Dynamic Incentive of Price-Quality Differentiation By A Monopolist Firm

Guy Ho Wang

International Economic Journal, 2000, vol. 14, issue 1, 33-45

Abstract: When consumers are theterogeneous in their preferences about the quality of a product, a monopolist firm can take advantage of this heterogeneity, thereby, increase the profit by offering different price-quality pairs. This business practice is called the second degree price discrimination or non-linear pricing. This paper extends the static non-linear pricing problem into the dynamic one where the monopolist firm cannot precommit in advance. The main result is that the dynamic non-linear pricing outcome is the same as the static non-linear pricing outcome so that additional opportunities to transact neither benefits nor hurts the monopolist firm. [L12]

Date: 2000
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DOI: 10.1080/10168730000000002

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