Price versus Quantity: Market Clearing Mechanisms When Sellers Differ in Quality

Andrew Metrick and Richard Zeckhauser

No 5728, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: High-quality producers in a vertically differentiated market can reap superior profits by charging higher prices, selling greater quantities, or both. If qualities are known by consumers and production costs are constant, then having a higher quality secures the producer both higher price and higher quantity; if marginal costs are rising, having a higher quality assures only higher price. If only some consumers can discern quality but others cannot, then high- and low-quality producers may set a common price, but the high-quality producer will sell more. In this context, quality begets quantity. Empirical analyses suggest that in both the mutual fund and automobile industries, high-quality producers sell more units than their low-quality competitors, but at no higher price (or markup) per unit.

JEL-codes: L11 L62 (search for similar items in EconPapers)
Date: 1996-08
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Journal of Risk and Uncertainty, Vol. 17, no. 3 (December 1998): 215-243.

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Working Paper: Price Versus Quanitity: Market Cleaning Mechanisms When Sellers Differ in Quality (1996)
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