Snobs and Quality Gaps

Suren Basov, Melbourne University

Abstract

The paper characterizes the optimal provision of quality by a monopolist facing a population of consumers with private valuation for quality. Unlike previous models by Mussa and Rosen (1978) and others, this paper assumes there is a mass of consumers who prefer the highest quality goods. I liken these consumers to snobs who demand the highest valued goods. I show that the quality supplied jumps discontinuously as the highest valued consumers are encountered and the variety of products is reduced as the population of snobs increases. I also show that only snobs may be supplied once their population grows to a critical size.