A decomposition of monopolistic quality distortion

The quality distortion caused by a linear pricing monopolist is separated into two components; one measures the imbalance of quality and quantity (the skewed component) and the other measures the restriction of production to increase marginal willingness to pay (the unskewed component). Conditions identifying the direction of quality distortion caused by each of these components are presented. Fundamental special cases of preferences and costs, which are useful representation in a variety of contexts, are analyzed using this framework.

► A decomposition of the quality distortion caused by a linear pricing monopolist is proposed.
► One component measures the quality/quantity imbalance and the other the restriction of production.
► The direction of quality distortion attributable to each component is identified.
► Fundamental special cases of preferences and costs are analyzed using this framework.