Price Discrimination and Quality Improvement

Ohio State University Working Paper #96-18

33 Pages Posted: 11 Mar 2000

See all articles by Amy Jocelyn Glass

Amy Jocelyn Glass

Texas A&M University - Department of Economics

Date Written: July 1999

Abstract

'Top-of-the-line PCs and servers ... tend to be purchased by early adopters, technophiles who just can't wait' (Fortune, February 17, 1997). This paper constructs a model of quality improvements where multiple quality levels can sell due to differences in consumers' valuations of quality. Firms can price discriminate against consumers so that afficionados pay a price premium, while frugal consumers receive a quality level below the highest available. When the spending share of quality enthusiasts is sufficiently large, government intervention to ensure that only the highest quality level available of each product is sold must be welfare reducing due to reduced innovation.

JEL Classification: O31, L16, D31

Suggested Citation

Glass, Amy Jocelyn, Price Discrimination and Quality Improvement (July 1999). Ohio State University Working Paper #96-18, Available at SSRN: https://ssrn.com/abstract=170428 or http://dx.doi.org/10.2139/ssrn.170428

Amy Jocelyn Glass (Contact Author)

Texas A&M University - Department of Economics ( email )

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