McAfee, R. Preston (2007) Pricing Damaged Goods. Economics, 2007 (1). ISSN 1864-6042. https://resolver.caltech.edu/CaltechAUTHORS:MCAe07
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Abstract
Companies with market power occasionally engage in intentional quality reduction of a portion of their output as a means of offering two qualities of goods for the purpose of price discrimination, even absent a cost saving. This paper provides an exact characterization in terms of marginal revenues of when such a strategy is profitable, which, remarkably, does not depend on the distribution of customer valuations, but only on the value of the damaged product relative to the undamaged product. In particular, when the damaged product provides a constant proportion of the value of the full product, selling a damaged good is unprofitable. One quality reduction produces higher profits than another if the former has higher marginal revenue than the latter.
Item Type: | Article | ||||||
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Additional Information: | © Author(s) 2007. This work is licensed under a Creative Commons License - Attribution-NonCommercial 2.0 Germany | ||||||
Issue or Number: | 1 | ||||||
Classification Code: | JEL Classification: D43 L15 | ||||||
Record Number: | CaltechAUTHORS:MCAe07 | ||||||
Persistent URL: | https://resolver.caltech.edu/CaltechAUTHORS:MCAe07 | ||||||
Official Citation: | Preston McAfee (2007). Pricing Damaged Goods. economics - The Open-Access, Open-Assessment E-Journal, 2007-1. http://www.economics-ejournal.org/economics/journalarticles/2007-1 | ||||||
Usage Policy: | No commercial reproduction, distribution, display or performance rights in this work are provided. | ||||||
ID Code: | 8608 | ||||||
Collection: | CaltechAUTHORS | ||||||
Deposited By: | Archive Administrator | ||||||
Deposited On: | 22 Aug 2007 | ||||||
Last Modified: | 12 Dec 2019 17:07 |
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