Quality improvement through consumer sorting and disposal

Abstract

Sorting allows consumers to capture the value of quality differences. As higher quality goods are removed, the value of the seller?s remaining stock falls, lowering the price and profits. Bundling and other marketing mechanisms can discourage sorting and prevent the depreciation of the seller?s stock. With comparative statics and simulations, the author shows that sellers can increase expected quality and profits by committing to discard a proportion of their resale stock after sorting occurs. In this manner, sorting acts similarly to agricultural grading. [EconLit Classification: Q1, Q11, Q13, L0, L1, D8, D82]. © 2009 Wiley Periodicals, Inc.