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