Quality and Price Polarization for food and Firms' Strategic Behavior
2007
Hwang, Y.J. (Korea Rural Economic Institute, Seoul, Republic of Korea) | Lee, M.K. (Korea Rural Economic Institute, Seoul, Republic of Korea)
This study analyzes a factor inducing quality and price polarization. Using a theoretical model where a monopolistic firm offers different combinations of quality and price to different types of consumers under asymmetric information on comsumer types, we find that the price and quality polarization deepens as the proportion of quality-oriented consumers increases. As the proportion increases, a monopolistic firm does not change quality for quality-oriented consumers but increases price. On the other hand, the firm decreases quality and price for less quality-oriented consumers. As such, the firm's profit always increases, whereas whole consumers' utility increases only when the proportion of quality-oriented consumers is low enough.
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