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A monopolist charges the same price for differentiated products when high quality products are likely to be assigned to low valuation consumers. The argument explains the use of "unpriced quality' for concert tickets, movie theate...
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A monopolist charges the same price for differentiated products when high quality products are likely to be assigned to low valuation consumers. The argument explains the use of "unpriced quality' for concert tickets, movie theaters, and elsewhere.
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As the collection of consumer data becomes more common, online merchants are better equipped to price discriminate now more than ever before. While standard first-degree price discrimination benefits merchants and harms consumers ...
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As the collection of consumer data becomes more common, online merchants are better equipped to price discriminate now more than ever before. While standard first-degree price discrimination benefits merchants and harms consumers relative to uniform pricing, I derive an alternative first degree pricing strategy that achieves efficiency and Pareto improves upon the uniform pricing equilibrium. Furthermore, I show that price ceilings can enforce these Pareto price discrimination strategies, making Pareto price discrimination a viable option for merchants and policy makers. Published by Elsevier B.V.
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This paper examines the welfare effect of third-degree price discrimination in a vertically related market with one upstream monopolist that sells its input to a continuum of downstream markets. Assume that the market boundary of ...
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This paper examines the welfare effect of third-degree price discrimination in a vertically related market with one upstream monopolist that sells its input to a continuum of downstream markets. Assume that the market boundary of the monopolist is endogenously determined. It is found that social welfare is necessarily lower under discriminatory than uniform pricing, even if the market area of the former is greater than that of the latter. This finding is contrary to that in the extant literature on price discrimination in final goods markets.
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Online markets offer sellers access to buyers’ information and, thus, the potential to alter prices and products accordingly. In light of this, we undertook an empirical analysis to test for individualization on Amazon.com. We co...
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Online markets offer sellers access to buyers’ information and, thus, the potential to alter prices and products accordingly. In light of this, we undertook an empirical analysis to test for individualization on Amazon.com. We collect data from individuals recruited to shop for household items. Our results indicate evidence of individualization of search results and net prices (via coupons). We found, contrary to what was expected, that demographic, geolocation, and account information play an insignificant role in individualization of search results. Thus, we conclude that individualization is based on more dynamic information, e.g., online browsing behavior. This highlights the fact that sellers’ need for (and use of) buyer information goes beyond the simple information accessible from the buyers’ accounts to a more rigorous monitoring of buyers’ online behavior.
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Using a panel dataset comprising of 51 models across 21 European Union member states, I estimate the effects of country-specific factors that make price discrimination profitable. Taking advantage of cross-country heterogeneities,...
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Using a panel dataset comprising of 51 models across 21 European Union member states, I estimate the effects of country-specific factors that make price discrimination profitable. Taking advantage of cross-country heterogeneities, I find that a domestic brand bias, per capita income, and income inequalities lead to significantly different prices across borders. The role of income inequalities is supported by a theoretical model of indirect price discrimination at the national level. We therefore conclude that not only direct international price discrimination, but also indirect national price discrimination is responsible for the observed price differentials across international borders, which are not likely to fully converge as long as the exclusive dealership system is in place, and significant demand-side differences still remain.
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Using a mechanism design approach, we consider a firm's optimal pricing policy when consumers are heterogeneous and learn their valuations at different times. We show that by offering a menu of advance-purchase contracts that diff...
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Using a mechanism design approach, we consider a firm's optimal pricing policy when consumers are heterogeneous and learn their valuations at different times. We show that by offering a menu of advance-purchase contracts that differ in when, and for how much, the product can be returned, a firm can more easily price discriminate between privately-informed consumers. In particular, we show that screening on when the return option can be exercised increases firm profits, relative to screening on the size of the refund alone, only if the expected gains from trade are higher for consumers who learn later. We show that in some settings (mean-preserving spread) the firm can achieve the complete-information profits and analyze the optimal contract in other settings (first-order stochastic dominance) in which the first-best allocation is not always feasible. (C) 2015 Elsevier Inc. All rights reserved.
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We analyze empirically export-price strategies across export destinations using detailed firm-product data. Most recent studies using disaggregated data to investigate why firms charge different prices for the same product on diff...
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We analyze empirically export-price strategies across export destinations using detailed firm-product data. Most recent studies using disaggregated data to investigate why firms charge different prices for the same product on different markets focus on the cost component of prices and neglect the markup component. In this paper, we concentrate on the markup component and examine how variations in firms' export prices may reflect price discrimination by comparing the markup of firms with different pricing strategies. We make use of detailed firm-level data for exporting firms in the Swedish food sector consisting of both manufacturing and intermediary trading firms. The paper documents the export-price variations within the two sub-sectors and explores how different price strategies correlate with markups. The results offer new information beyond the fact that exporters tend to have a higher markup. In particular, we find that firms in the food-processing sector with a greater ability to discriminate across markets mark their products up even more. This result points to the importance of underlying firm decisions in order to explain differences in export premiums across firms. In addition, the results reveal that markups are a complex function of firm and destination characteristics, and that the relationship between markups and pricing strategies in the manufacturing sector is not necessarily observed in other sectors of the supply chain.
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In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices....
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In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices. After almost a decade of Full Retail Contestability, the State of Queensland finally removed its regulated price cap from the residential electricity market in 2016, while almost simultaneously, the two jurisdictions that pioneered this price deregulation reform, Great Britain and Victoria, were questioning their prior policy decision. Queensland makes for a fascinating case study because Southeast Queensland comprises a fully deregulated retail market while Regional Queensland is a regulated monopoly - with common input costs across both zones. Consequently, a regulated monopoly with a uniform tariff and 640,000 customers forms a very large control group, which can be directly compared to the competitive market of more than 13 million customers - making such analysis globally unique. Analysis of Queensland market conditions concludes the policy is welfare enhancing, and that British and Victorian concerns regarding price discrimination practices are misguided. To be clear, rising electricity prices are a problem, but price discrimination is not. The deregulated competitive market is, perhaps unsurprisingly, better at regulating the overall average tariff and consumer welfare has been enhanced by $184 million per annum - with some consumer segments very materially better off. However, certain modes of failure remain, viz. an inter-consumer misallocation problem and lack of transparency vis-a-vis the anchoring of discounts - known as the "discounts off what?" problem. The former is currently trivial, and the latter requires further research. (C) 2018 Elsevier B.V. All rights reserved.
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The ability of a monopoly seller to prevent resale is often presented as a necessary condition for first degree price discrimination. In this paper, we explore this claim and show that, even with costless arbitrage markets, price ...
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The ability of a monopoly seller to prevent resale is often presented as a necessary condition for first degree price discrimination. In this paper, we explore this claim and show that, even with costless arbitrage markets, price discrimination may continue to be both feasible and profit maximizing despite potential resale. With finite numbers of consumers, arbitrage markets may be 'thin', in the sense that there can be too few low-valuation consumers to supply high-valuation consumers. We examine both ex ante and ex post arbitrage markets and show how a monopoly can exploit potential 'thinness' to profitably price discriminate. In each case, we present sufficient conditions for equilibrium price discrimination. We note that the form of such discrimination depends on the nature of the arbitrage market and consider business strategies that a monopoly might adopt to exacerbate market thinness. Our results show how market depth and the effectiveness of arbitrage can be the key elements for price discrimination, rather than the per se prevention of reselling.
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This study explores consumer expectations and attitudes related to gender-based price discrimination. Although much research has focused on pay inequalities and gender diversity, considerably less attention has been focused on sit...
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This study explores consumer expectations and attitudes related to gender-based price discrimination. Although much research has focused on pay inequalities and gender diversity, considerably less attention has been focused on situations in which men and women are charged different prices based on gender. In two studies, expectations and attitudes toward gender-based price discrimination are examined. In Study 1, two scenarios related to prices at hair salon and dry cleaning services were manipulated to measure expectations and attitudes toward gender-based price discrimination. We found that the nature of the service results in expectations of price differences between men and women. We also found men expect gender-based pricing more than women. In Study 2, qualitative research was conducted to reveal the cognitions that men and women experience when exposed to gender-based price discrimination.
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