Optimal Price-Quality Schedules and Sustainability

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This paper derives a general solution for optimal price-quality scheduling under imperfect information. The solution is general in the sense that it generates the first best, the second best, and the profit maximizing solutions depending on the weights in the objective function. The important assumption is that the fixed setup cost is related to the range of qualities produced by a firm. This paper also demonstrates a nonlinear version of the occasional incompatibility between the second best pricing and sustainability, and derives the conditions for sustainability of the second best price-quality schedule.