Does Monopoly Undersupply Product Quality?¤

I investigate the behaviour of a multiproduct monopolist supplying vertically di®erentiated varieties of the same good. The discrete model adopted here allows to obtain a continuous model when, in the limit, the number of varieties becomes in ̄nitely large. The main ̄nding establishes that the tendency on the part of the monopolist to undersupply all qualities but the top one can take two alternative forms, i.e., either qualities correspond to the socially optimal ones but the allocation of consumers across qualities is distorted by the price schedule, or qualities are indeed lower than those supplied under social planning. The ̄rst case arises when the monopolist ̄nds it pro ̄table to restrict output, while the second obtains when the market is rich enough to induce the monopolist to supply the same quantity a social planner would produce. Policy implications are discussed. JEL classi ̄cation: L12