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 Consumer Scores and Price Discrimination

2019 ◽  
Vol 87 (2) ◽  
pp. 750-791 ◽  
Author(s):  
Alessandro Bonatti ◽  
Gonzalo Cisternas
Keyword(s):  
Willingness To Pay ◽  
Price Discrimination ◽  
Consumer Surplus ◽  
Equilibrium Price ◽  
Bayes Rule ◽  
Ratchet Effect ◽  
Disaggregated Data ◽  
Price Discriminate ◽  
Linear Aggregate ◽  
Demand Sensitivity

Abstract We study the implications of aggregating consumers’ purchase histories into scores that proxy for unobserved willingness to pay. A long-lived consumer interacts with a sequence of firms. Each firm relies on the consumer’s current score–a linear aggregate of noisy purchase signals—to learn about her preferences and to set prices. If the consumer is strategic, she reduces her demand to manipulate her score, which reduces the average equilibrium price. Firms in turn prefer scores that overweigh past signals relative to applying Bayes’ rule with disaggregated data, as this mitigates the ratchet effect and maximizes the firms’ ability to price discriminate. Consumers with high average willingness to pay benefit from data collection, because the gains from low average prices dominate the losses from price discrimination. Finally, hidden scores—those only observed by the firms—reduce demand sensitivity, increase average prices, and reduce consumer surplus, sometimes below the naive-consumer level.

scholarly journals DETERMINANTS OF PRICE DISCRIMINATION INFLUENCE VECTOR ON PUBLIC WELFARE

2021 ◽  
Author(s):  
Vladyslava Harchuk ◽  
Anzhelika Gerasymenko
Keyword(s):  
Price Discrimination ◽  
Low Income ◽  
Consumer Surplus ◽  
Legal Framework ◽  
State Regulation ◽  
Public Welfare ◽  
Theoretical Research ◽  
Negative Effects ◽  
Positive Effects ◽  
Glucose Syrup

The article considers the nature of price discrimination, defined by different researchers. It mainly relates to strategic behaviour of firms that sell the same product to different consumers at different prices. On the one hand, it leads to redistribution of consumer surplus to producer that reduces a public welfare, being a negative consequence of price discrimination. On another hand, the price discrimination provides access of low-income people to a product. It is the way for them to buy it at a reduced price, and this is a positive consequence of price discrimination on public welfare. The article depicts positive effects of price discrimination with examples of banking (deposit rates), cosmetics (season tickets) and education markets (tuition fee). These markets are distinguish by dispersed structure that is favoured for competition. Negative effects in the article are depicted with example of glucose syrup market, marked with a dominance. These examples, as well as the results of theoretical research, witness that a market structure is one of the determinants of a vector of price discrimination influence on public welfare. Another determinant (behavioural) is defined by Pike – Shastitko criteria, among which are: exploitation of a dominance, distorting of competition on the downstream markets (leverage of dominance), and reducing of the potential competition. Considering of the above-mentioned structural and behavioural determinants of the vector of price discrimination influence on public welfare asks for relevant legal reflection within the system of state regulation of price discrimination. The authors analyse the current Ukrainian legal framework of price discrimination regulation, highlighting the gaps which are still exist, determining mostly negative effects of price discrimination influence on the public welfare of Ukrainians. They develop the recommendation of how to do balance its negative and positive effects through change of legislation, in particular, the introduction of certain requirements for exemption from competition law, starting from the foreign, mainly American, experience.

scholarly journals Competitive Personalized Pricing

2020 ◽  
Vol 66 (9) ◽  
pp. 4003-4023 ◽  
Author(s):  
Zhijun Chen ◽  
Chongwoo Choe ◽  
Noriaki Matsushima
Keyword(s):  
Social Welfare ◽  
Price Discrimination ◽  
Identity Management ◽  
Consumer Surplus ◽  
Consumer Information ◽  
Deadweight Loss ◽  
Market Segment ◽  
Target Segment ◽  
Price Discriminate

We study a model where each competing firm has a target segment where it has full consumer information and can exercise personalized pricing, and consumers may engage in identity management to bypass the firm’s attempt to price discriminate. In the absence of identity management, more consumer information intensifies competition because firms can effectively defend their turf through targeted personalized offers, thereby setting low public prices offered to nontargeted consumers. But the effect is mitigated when consumers are active in identity management because it raises the firm’s cost of serving nontargeted consumers. When firms have sufficiently large and nonoverlapping target segments, identity management can enable firms to extract full surplus from their targeted consumers through perfect price discrimination. Identity management can also induce firms not to serve consumers who are not targeted by either firm when the commonly nontargeted market segment is small. This results in a deadweight loss. Thus, identity management by consumers can benefit firms and lead to lower consumer surplus and lower social welfare. Our main insight continues to be valid when a fraction of consumers are active in identity management or when there is a cost of identity management. We also discuss the regulatory implications for the use of consumer information by firms as well as the implications for management. This paper was accepted by Juanjuan Zhang, marketing.

scholarly journals Price Discrimination with Varying Qualities of Information

2016 ◽  
Vol 16 (2) ◽  
pp. 1093-1121 ◽  
Author(s):  
Qihong Liu ◽  
Jie Shuai
Keyword(s):  
Price Discrimination ◽  
Information Acquisition ◽  
Information Quality ◽  
Consumer Surplus ◽  
Spatial Differentiation ◽  
Consumer Welfare ◽  
Consumer Information ◽  
Demand Elasticity ◽  
Social Surplus ◽  
Potential Damage

Abstract Advances in information technology have greatly enhanced firms’ ability to collect, market and utilize consumer information. As the market for consumer information expands rapidly, businesses are armed with unprecedented means to target any group of consumers they desire. This has important and far-reaching impacts on consumer welfare. In this paper we analyze the welfare impacts of price discrimination facilitated by increasing qualities of consumer information. We employ a two-dimensional spatial differentiation model where consumer information is available on one dimension, and better information leads to more refined price discrimination. We find that as information quality improves, equilibrium prices and profits monotonically increase while consumer surplus and social surplus monotonically decrease. Price discrimination has a reduced demand elasticity effect which becomes stronger when consumer information becomes more precise. Our results suggest that regulators need to pay more attention to the potential damage to consumer welfare by the increasing collection and utilization of consumer information. We also endogenize firms’ information acquisition decisions.

scholarly journals Consumer Privacy and the Incentives to Price-Discriminate in Online Markets

2017 ◽  
Vol 16 (3) ◽  
pp. 291-305 ◽  
Author(s):  
Alexandre de Cornière ◽  
Rodrigo Montes
Keyword(s):  
Simple Model ◽  
Price Discrimination ◽  
Value Added ◽  
Uniform Price ◽  
Consumer Privacy ◽  
Ex Ante ◽  
Consumer Data ◽  
Product Customization ◽  
Price Discriminate

Abstract This paper studies how product customization and consumer privacy affect a monopolist’s incentives to engage in perfect price discrimination. We consider a monopolist that faces an ex ante choice to commit to price discrimination or to a uniform price. We introduce a simple model in which a monopolist can use analytics to access consumer data to both price-discriminate and offer customized products. In turn, consumers can protect their privacy to avoid price discrimination at a cost. By committing not to price-discriminate, the firm induces consumers to not protect their data, which allows it to customize the product. It can then extract the extra value through an increased uniform price. This strategy is profitable when the value added through customization is sufficiently high. An intermediate quality of analytics gives the monopolist more incentives to set a uniform price.

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 An economic analysis of ransomware and its welfare consequences

2020 ◽  
Vol 7 (3) ◽  
pp. 190023
Author(s):  
J. Hernandez-Castro ◽  
A. Cartwright ◽  
E. Cartwright
Keyword(s):  
Economic Analysis ◽  
Price Discrimination ◽  
Proof Of Concept ◽  
Welfare Costs ◽  
Pilot Survey ◽  
Uniform Pricing ◽  
The Future ◽  
Welfare Consequences ◽  
New Form

We present in this work an economic analysis of ransomware, a relatively new form of cyber-enabled extortion. We look at how the illegal gains of the criminals will depend on the strategies they use, examining uniform pricing and price discrimination. We also explore the welfare costs to society of such strategies. In addition, we present the results of a pilot survey which demonstrate proof of concept in evaluating the costs of ransomware attacks. We discuss at each stage whether the different strategies we analyse have been encountered already in existing malware, and the likelihood of them being implemented in the future. We hope this work will provide some useful insights for predicting how ransomware may evolve in the future.

scholarly journals The Erroneous Foundations of Law and Economics

2021 ◽  
pp. 1-114
Author(s):  
Mark Glick ◽  
Gabriel A. Lozada
Keyword(s):  
Law And Economics ◽  
Consumer Surplus ◽  
Political Influence ◽  
Consumer Welfare ◽  
Pareto Efficiency ◽  
Wealth Maximization ◽  
The Status ◽  
Definition Of ◽  
Ethical Failures ◽  
The 19Th Century

The fundamental originating principle of law and economics (L&E) is that legal decisions should be (and are) based on maximizing efficiency. But L&E proponents do not define “efficiency” in the way agreed to by most economists, as Pareto Efficiency. A Pareto optimal condition is obtained when no one can be made better off without making someone worse off. Pareto Improvements are win-win changes where no losers exist. In the judicial system, however, there are always winners and losers, because under Article III § 2 of the Constitution a legal case does not exist unless there is a justiciable “case or controversy” in need of resolution. Unable to use Pareto Efficiency, L&E scholars have been forced to adopt alternative definitions of efficiency. Most L&E scholars claim to define “efficiency” based on the work of Kaldor and Hicks, but (perhaps unwittingly) instead use a definition of “efficiency” derived from the 19th century idea of consumer surplus, which encompasses L&E notions such as “wealth maximization,” and “consumer welfare” in antitrust. Neither of these alternative definitions is viable, however. Outside of L&E, the Kaldor-Hicks approach has long been recognized to be riddled with logical inconsistencies and ethical failures, and the surplus approach is even more deficient. Remarkably, virtually none of the numerous L&E textbooks even hint at such problems. Critically, all definitions of efficiency improvements in economics are biased in favor of wealthy individuals or firms, either because they are dependent on the status quo ante distribution of assets, or because they bestow large advantages on parties with political influence or who can afford to bring lawsuits quickly. Many L&E practitioners treat efficiency improvements instead as being objectively good, an error revealing that L&E is primarily motivated by its neoliberal policy agenda.

The Sustainable Forestry Initiative’s impact on stumpage markets in the US South

2005 ◽  
Vol 35 (8) ◽  
pp. 2056-2064 ◽  
Author(s):  
Roger Brown ◽  
Daowei Zhang
Keyword(s):  
Consumer Surplus ◽  
Sustainable Forestry ◽  
Consumer Welfare ◽  
Us South ◽  
Equilibrium Displacement Model ◽  
Equilibrium Displacement ◽  
The Us ◽  
Producer Surplus ◽  
Nonindustrial Private Forest ◽  
Displacement Model

Using survey data and an equilibrium displacement model, we estimate the market and economic impacts of the American Forest and Paper Association's Sustainable Forestry Initiative (SFI) on stumpage markets in the US South. We examine four timber product markets: softwood pulpwood, softwood sawtimber, hardwood pulpwood, and hardwood sawtimber. In each market we calculate changes in producer and consumer welfare using the equilibrium displacement model that accounts for reductions in timber inventories caused by SFI compliance. We find that SFI compliance costs the US South's economy about $36 million annually. SFI-compliant stumpage producers lose more than $33 million each year in producer surplus as a result of SFI compliance, and consumers lose about $12 million annually in consumer surplus due to higher product prices. These costs are offset partially by benefits to nonindustrial private forest producers, non-SFI-compliant industry producers, and public forest producers, who collectively gain about $10 million in producer surplus annually as a result of higher stumpage prices.

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