Vertical Differentiation in Monetary Search-Theoretic Model: Revisited

Quality levels have been widely discussed in the "second generation" of monetary search- theoretical model. In this article, the discussion on quality levels being produced is extended. We found that whether money holders have quality preferences is crucial to the results. While the effect of the fraction of money on quality levels is consistent with current literature, the effect of the economy's quality preferences on quality drives the quality levels to opposite directions. The results found in this exercise can be regarded as complementary to the findings in Trejos (1999).