A model of quality and capacity variation

This problem of product selection and princing are considered in congested and uncongested markets. In a congested market, such as a computer service market, product quality (the level of congestion) is partly a function of the amount of usage, which in turn depands on user choice. In an uncongested market, product qualities are set solely by providers. A model of quality and capacity variation is developed using a state equation description to represent user optimizing behavior. The model is used to study the problem of scarce resources among competing user demands through quality-dependent pricing.