The Determinants of the Quantity-Quality Balance in Monopoly

<p>This paper describes how a monopolist manipulates the balance of quantity and quality in<br> order to increase revenue when its customers treat quantity and quality as substitutes. This<br> ‘skewing’ of quality depends on the characteristics of customer’s demand for quality.<br> Customers differ in demand for quality, because they differ in either (i) their preferences<br> and/or (ii) their time cost per unit. The monopolist is constrained to supply the same quality<br> of good to all customers. The price and quality per unit are described under the assumption<br> the monopolist (i) profit maximises; (ii) maximises social welfare subject to a profit<br> constraint. The determinants of the skewing of quantity and quality are found under third<br> degree price discrimination and uniform pricing.</p>