Monopolistic competition and exclusive quality

Journal article

In this paper I adapt a classic model of monopolistic competition where products are differentiated by quality, in order to study a market in which high-quality products can only be enjoyed by users with sufficient ability. Casting the model in the context of higher education – where selective colleges pledge quality by excluding low-ability students –, I show that there are two equilibrium market segmentations: one in which highly selective colleges serve high-income high-ability students, and another in which highly selective colleges are cheaper than the less selective competitors that cater to low-ability high-income students. I provide an example to illustrate the welfare implications of these two market configurations.

Authors: Ortiz-Ospina, E

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: De Gruyter
• Journal: B.E. Journal of Economic Analysis and Policy
• Volume: 17
• Issue: 2
• Article number: 20160036
• Publication date: 2017-05-24
• Acceptance date: 2017-03-08
• DOI: 10.1515/bejeap-2016-0036
• EISSN: 1935-1682
• ISSN: 2194-6108
• Keywords: FFR