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Cover of: Product Varieties in a Quality-Differentiated Goods Monopoly
Changying Li, Jianhu Zhang

Product Varieties in a Quality-Differentiated Goods Monopoly

Section: Articles
Volume 175 (2019) / Issue 3, pp. 524-536 (13)
Published 09.08.2018
DOI 10.1628/jite-2018-0014
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  • 10.1628/jite-2018-0014
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This paper analyzes market versus optimal product varieties in a vertically differentiated goods monopoly. Four results are obtained. First, compared to the first- or second-best optimum, product varieties are always undersupplied by a monopolist. Second, the quality range under a monopoly is smaller than that under the first- or second-best optimum. Third, the monopolist distorts the lowest quality upward while distorting the highest quality downward. Finally, a fixed-cost subsidy can lead to a second-best outcome where a social planner determines the number of product varieties and the corresponding qualities, and the monopolist decides the prices.