An incentive pricing with two types of qualities and users

This paper analyses quality discrimination when the monopolist provides two types of qualities for two-types of users, for example, in the software market. The users using software are confronted with two types of quality in using the software: one is related to learning, while the other is operation. In addition, the users are discriminated by the frequency of utilization for software, for example, low-demand and high-demand users. In this paper, the characteristics for bi-directional quality distortion in both learning quality and operation quality are analysed. It is shown that the distortion can occur both for low demanders and for high demanders. Finally, from public policy, a subsidy mechanism is introduced.