Price versus Quantity: Market Clearing Mechanisms When Sellers Differ in Quality [report]

Andrew Metrick, Richard Zeckhauser
1996 unpublished
High-quality producers in a vertically differentiated market can reap superior profits by charging higher prices, selling greater quantities, or both. If qualities are known by consumers and production costs are constant, then having a higher quality secures the producer both higher price and higher quantity; if marginal costs are rising, having a higher quality assures only higher price. If only some consumers can discern quality but others cannot, then high-and low-quality producers may set a
more » ... producers may set a common price, but the high-quality producer will sell more. In this context, quality begets quantity. Empirical analyses suggest that in both the mutual fund and automobile industries, highquality producers sell more units than their low-quality competitors, but at no higher price (or markup) per unit.
doi:10.3386/w5728 fatcat:bk4xvfadtremxgtbwjsd47gpaa