Skip navigation

Nonconvex Production Technology and Price Discrimination

Authors: Jing, Bing
Radner, Roy
Keywords: Product Line Design;Price Discrimination;Product
Issue Date: 15-Dec-2004
Publisher: Stern School of Business, New York University
Series/Report no.: CeDER-05-14
Abstract: We revisit the issue of product line design by a monopolist and extend the model of Mussa and Rosen (1978) in two ways. First, we consider the case in which the unit cost is a nonconvex function of product quality. We show that the firm does not offer those qualities where the unit cost is linear or exceeds its lower convex envelope. Consequently, there are "gaps" in its optimal quality choice. Second, when the firm can offer only a limited number of quality levels (due to possible fixed costs), we characterize the optimal location of these finitely many quality levels. This characterization again has the property that none of these qualities will lie within an interval where the unit cost is linear or exceeds its lower convex envelope. Several implications of the above results are discussed.
Appears in Collections:CeDER Working Papers
IOMS: Information Systems Working Papers

Files in This Item:
File Description SizeFormat 
CeDER-05-14.pdf217.87 kBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.