Uniform pricing and quality competition: How price-fixing expands the market
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This paper examines whether uniform pricing among differentiated products benefits consumer surplus by focusing on competition in quality. While uniform pricing seems counterintuitive, as differentiated products typically have different optimal prices, the paper finds that it is both the most profitable for firms and beneficial for consumers. By analyzing three pricing regimes—competitive, uniform, and differential pricing—the study shows that uniform pricing leads to higher product quality, making quality the primary means of differentiation. This results in market expansion and increased consumer surplus. The paper also suggests that uniform pricing is most profitable when consumers prioritize quality over price reductions, providing insights for regulatory authorities on price collusion.
Abstract
This paper examines whether uniform pricing among differentiated products benefits consumer surplus by focusing on competition in quality. While uniform pricing seems counterintuitive, as differentiated products typically have different optimal prices, the paper finds that it is both the most profitable for firms and beneficial for consumers. By analyzing three pricing regimes—competitive, uniform, and differential pricing—the study shows that uniform pricing leads to higher product quality, making quality the primary means of differentiation. This results in market expansion and increased consumer surplus. The paper also suggests that uniform pricing is most profitable when consumers prioritize quality over price reductions, providing insights for regulatory authorities on price collusion.