Quality choice of multiproduct monopolist and spill-over effect

Abstract

This paper considers the cost relatedness between qualities that are generally taken as being mutually independent in the standard self-selection models. Unlike the standard results, the quality distortion occurs in all qualities offered to both types of consumers and, interestingly, the direction of that distortion is determined by the rate of the marginal cost-down from the spill-over effect. Even a pooling menu may occur.