Angyridis, Constantine and Sen, Debapriya (2010): Relative and Absolute Preference for Quality.
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This paper seeks to explain two related phenomena: (i) it is often the case that when the new variety of a product is launched, some consumers do not purchase the latest variety and (ii) the quality of the latest variety of a product is often not significantly superior compared to the existing variety. We consider a simple model of monopoly with two types of consumers: "regular" (type R) who cares only about the absolute quality of the product and "fastidious" (type F) who cares about the relative quality vis-a-vis the existing variety. We show that it is never optimal for the monopolist to exclusively serve type F. Moreover, we identify situations where although it is optimal for the monopolist to upgrade the quality of the product, this upgrade is not sufficient to meet the standards of type F. As a result, only type R buys the upgraded variety while type F chooses not to buy it.
|Item Type:||MPRA Paper|
|Original Title:||Relative and Absolute Preference for Quality|
|Keywords:||Relative Preference; Absolute Preference; Singular Menu; Separating Menu|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
D - Microeconomics > D4 - Market Structure and Pricing > D42 - Monopoly
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality; Standardization and Compatibility
|Depositing User:||Debapriya Sen|
|Date Deposited:||08. Jun 2010 21:49|
|Last Modified:||13. Feb 2013 02:20|
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