Economics, Econometrics and Finance
4 years ago

Companies Profit by Selling Damaged Goods, Regardless of Customer Valuations

RePEc: Research Papers in Economics
Pricing Damaged Goods
R. Preston McAfee

Paper Summary

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Companies sometimes intentionally lower the quality of their products to offer different price options, even if it doesn't save them money. A study found that this strategy is profitable when the damaged product is worth less than the undamaged one. If the damaged product is worth a constant proportion of the full product, it's not profitable. Selling a lower-quality product is more profitable if it brings in more money per unit sold.