DP4047 Durable Goods with Quality Differentiation
Author(s): | Roman Inderst |
Publication Date: | September 2003 |
Keyword(s): | coase conjuncture, durable-Goods monopolist, price discrimination, screening |
JEL(s): | C78, D42, D82 |
Programme Areas: | Industrial Organization |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=4047 |
What is the optimal strategy of a durable-goods monopolist that can offer goods in different qualities? This Paper provides an answer for the case where the market is segmented into low- and high-income buyers. If the monopolist can change their product and price policy sufficiently rapidly - which reduces their commitment power - we find that the whole market is served immediately. Low-quality goods may be sold below costs. These results are strikingly different to those obtained with non-durable goods and to those obtained if the durable good comes only in a single quality. In an extension we further employ our results to discuss how policies of restricted versioning fare differently with non-durable and durable goods.