scholarly journals Can Price Discrimination be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation

2003 ◽  
Vol 3 (1) ◽  
Author(s):  
Ofer H Azar
Keyword(s):  
Product Differentiation ◽  
Price Discrimination ◽  
Market Price ◽  
Consumer Welfare ◽  
Natural Monopoly ◽  
Universal Service ◽  
Differentiated Products ◽  
Duopoly Model ◽  
Price Discriminate ◽  
Price Constraints

Abstract The article examines a differentiated-products duopoly model where the firms make entry decisions to two markets and then choose prices. The effects of product differentiation and entry costs are analyzed in two games: with and without price discrimination between the markets. Allowing price discrimination encourages more entry and tends to reduce prices and profits and to increase consumer welfare in both markets. The model suggests that firms might be better off if they agree not to price discriminate between different markets. It also suggests that when the market is not a natural monopoly, regulators should consider the effects of universal service requirements on entry before adopting them, because entry might be discouraged by such requirements, leading to less competitive markets.

scholarly journals Banning Price Discrimination under Imperfect Competition: Evidence from Colombia's Broadband

2020 ◽  
Author(s):  
Juan Sebastián Vélez-Velásquez
Keyword(s):  
Economic Theory ◽  
Price Discrimination ◽  
Low Income ◽  
Imperfect Competition ◽  
Consumer Surplus ◽  
Consumer Welfare ◽  
Market Segments ◽  
Uniform Price ◽  
Uniform Pricing ◽  
Price Discriminate

Economic theory is inconclusive regarding the effects of banning third-degree price discrimination under imperfect competition because they depend on how the competing firms rank their market segments. When, relative to uniform pricing, all competitors want higher prices in the same market segments, a ban on price discrimination will reduce profits and benefit some consumers at the expense of others. If, instead, some firms want to charge higher prices in segments where their competitors want to charge lower prices, price discrimination increases competition driving all prices down. In this case, forcing the firms to charge uniform prices can increase their profits and reduce consumer surplus. We use data on Colombian broadband subscriptions to estimate the demand for internet services. Estimated preferences and assumptions about competition are used to simulate a scenario in which firms lose their ability to price discriminate. Our results show large effects on consumer surplus and large effects on firms’ profits. Aggregate profits increase but the effects for individual firms are heterogeneous. The effects on consumer welfare vary by city. In most cities, a uniform price regime causes large welfare transfers from low-income households towards high-income households and in a few cities, prices in all segments rise. Poorer households respond to the increase in prices by subscribing to internet plans with slower download speed.

scholarly journals Automobile Prices in Market Equilibrium with Unobserved Price Discrimination

2018 ◽  
Vol 86 (5) ◽  
pp. 1973-1998
Author(s):  
Xavier D’Haultfœuille ◽  
Isis Durrmeyer ◽  
Philippe Février
Keyword(s):  
Price Discrimination ◽  
Differentiated Products ◽  
Limited Information ◽  
Moment Conditions ◽  
Fixed Point Algorithm ◽  
Demand And Supply ◽  
Mapping Algorithm ◽  
Transaction Prices ◽  
Supply Model ◽  
Price Discriminate

Abstract In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This article considers the structural estimation of a demand and supply model of differentiated products with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved not only with usual moment conditions on the demand side, but also through supply-side restrictions. The model can be estimated by GMM using a nested fixed point algorithm that extends the usual contraction mapping algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.

18. Abuse of dominance (2): pricing practices

2018 ◽  
Author(s):  
Richard Whish ◽  
David Bailey
Keyword(s):  
European Commission ◽  
Price Discrimination ◽  
Market Price ◽  
Single Market ◽  
High Price ◽  
Parallel Imports ◽  
The Uk ◽  
Abuse Of Dominance ◽  
Article 102 Tfeu ◽  
The Eu

This chapter considers abusive pricing practices under Article 102 TFEU and the Chapter II prohibition in the Competition Act 1998. It discusses cost concepts used in determining whether a price is abusive and deals with excessive pricing; conditional rebates; bundling; predatory pricing; margin squeeze; price discrimination; and practices harmful to the single market. Price discrimination may be both exploitative and exclusionary and an excessively high price may be a way of preventing parallel imports or excluding a competitor from the market; but the division may provide helpful insights into the way in which the law is applied in practice. In each section the application of Article 102 by the European Commission and the EU Courts is considered, followed by cases in the UK. Where appropriate, reference is made to the Commission’s Guidance on the Commission’s Enforcement Priorities in Applying Article [102 TFEU] to Abusive Exclusionary Conduct by Dominant Undertakings.

A Note on the Multidimensional Monopolist Problem and Intertemporal Price Discrimination

2010 ◽  
Vol 10 (1) ◽  
Author(s):  
Mariano G Runco
Keyword(s):  
Price Discrimination ◽  
Price Strategy ◽  
Incentive Compatible ◽  
Step Functions ◽  
Intertemporal Price Discrimination ◽  
Ex Ante ◽  
Posted Prices ◽  
Price Discriminate ◽  
Heterogeneous Consumers ◽  
Over Time

This note analyzes a model of a monopolist selling multiple goods to a continuum of heterogeneous consumers. The implementation of Direct Revelation Mechanisms is analyzed in that setting, finding that it is possible for the monopolist to implement all Stochastic Incentive Compatible Mechanisms by committing to post a decreasing sequence of prices. The posted prices depend on time and have the desirable property of being step functions. When the optimal mechanisms are stochastic, it is optimal for the monopolist to price discriminate over time, contrary to the conventional wisdom that a single-good monopolist committed to an ex-ante price strategy will not price discriminate.

Economics of Agglomeration

2019 ◽  
Author(s):  
Jacques-François Thisse
Keyword(s):  
Urban Economics ◽  
Spatial Scales ◽  
Consumer Welfare ◽  
Increasing Returns ◽  
Dispersion Force ◽  
Differentiated Products ◽  
Economic Activities ◽  
Trade Off ◽  
Production Factors ◽  
Space Economy

Despite the drop in transport and commuting costs since the mid-19th century, sizable and lasting differences across locations at very different spatial scales remain the most striking feature of the space-economy. The main challenges of the economics of agglomeration are therefore (a) to explain why people and economic activities are agglomerated in a few places and (b) to understand why some places fare better than others. To meet these challenges, the usual route is to appeal to the fundamental trade-off between (internal and external) increasing returns and various mobility costs. This trade-off has a major implication for the organization of the space-economy: High transport and commuting costs foster the dispersion of economic activities, while strong increasing returns act as a strong agglomeration force. The first issue is to explain the existence of large and persistent regional disparities within nations or continents. At that spatial scale, the mobility of commodities and production factors is critical. By combining new trade theories with the mobility of firms and workers, economic geography shows that a core periphery structure can emerge as a stable market outcome. Second, at the urban scale, cities stem from the interplay between agglomeration and dispersion forces: The former explain why firms and consumers want to be close to each other whereas the latter put an upper limit on city sizes. Housing and commuting costs, which increase with population size, are the most natural candidates for the dispersion force. What generates agglomeration forces is less obvious. The literature on urban economics has highlighted the fact that urban size is the source of various benefits, which increase firm productivity and consumer welfare. Within cities, agglomeration also occurs in the form of shopping districts where firms selling differentiated products congregate. Strategic location considerations and product differentiation play a central role in the emergence of commercial districts because firms compete with a small number of close retailers.

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