Pricing Damaged Goods

@inproceedings{McAfee2007PricingDG,
  title={Pricing Damaged Goods},
  author={R. Preston McAfee},
  year={2007}
}
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… CONTINUE READING

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