price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

are health insurance markets competitive to gauge the competitiveness of the group health insurance industry i investigate whether health insurers charge higher premiums ceteris paribus to more profitable firms such direct price discrimination is feasible only in imperfectly competitive settings using a proprietary national database of health plans offered by a sample of large multisite firms from 1998 2005 i find firms with positive profit shocks subsequently face higher premium growth even for the same health plans moreover within a given firm those sites located in concentrated insurance markets experience the greatest premium increases the findings suggest health care insurers are exercising market power in an increasing number of geographic markets

price discrimination copyright law and technological innovation evidence from the introduction of dvds u s copyright law effectively prevents direct price discrimination for copyright holders that sell to different markets in response these firms can engage in indirect price discrimination i derive theoretical predictions about the use of indirect price discrimination and i analyze how optimal pricing strategies differ for different products using data on vhs and dvd movie distribution i find that firms pricing choices are consistent with the predictions of theory and that firms use of indirect price discrimination benefits consumers but harms ancillary retailers finally i examine what optimal pricing strategies might look like in a legal environment that permits direct price discrimination

airline market power and intertemporal price dispersion this paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the u k and the republic of ireland price dispersion is measured by the gini coefficient calculated using fares posted on the internet at specific days before takeoff we control for passengers heterogeneity in their purpose of travel as well as for such peak periods as christmas and easter our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines ability to price discriminate although this effect appears to be lessened in peak periods

do switching costs make markets less competitive abstract the conventional wisdom in economic theory holds that switching costs make markets less competitive this article challenges this claim the authors formulate an empirically realistic model of dynamic price competition that allows for differentiated products and imperfect lock in they calibrate this model with data from frequently purchased packaged goods markets these data are ideal in the sense that they have the necessary variation to identify switching costs separately from consumer heterogeneity equally important consumers exhibit inertia in their brand choices a form of psychological switching cost this makes the results applicable to the broad range of products that are distinctly identified i e branded rather than just to products for which there is a product adoption cost or explicit switching fee in the simulations prices are as much as 18 lower with than without switching costs more important equilibrium prices do not increase even in the presence of switching costs that

a folk theorem for one shot bertrand games we show that bounded monopoly profits are essential for the uniqueness of the bertrand paradox zero profit outcome otherwise a folk theorem obtains for one shot homogeneous product bertrand games any positive but finite payoff vector can be achieved in a symmetric mixed strategy nash equilibrium

colluding on relative prices firms sometimes agree to limit the discounts they offer a class of customers i e they collude on the price differences across consumer classes why courts have struck down agreements to limit discounts as violations of the laws against price fixing are these collusive agreements in fact efficient this article addresses these questions in a multiproduct duopoly model under one interpretation the incentive to collude on relative prices can be traced to heterogeneity in consumers time costs under fairly general conditions total surplus increases with the collusion this efficiency effect is most striking in the case where collusion raises the prices faced by all consumers over which firms compete

why do manufacturers issue coupons an empirical analysis of breakfast cereals we explore the relationship between shelf prices and manufacturers coupons for 25 readyto eat breakfast cereals we find that shelf prices are lower during periods when coupons are available this result is inconsistent with static monopoly price discrimination under a broad range of assumptions we present evidence that is inconsistent with both dynamic theories of price discrimination and explanations of couponing based on the vertical relationship between manufacturers and retailers we find support for models of price discrimination in oligopoly settings as well as suggestions that firmwide incentives may induce managers to use coupons and price cuts simultaneously finally lagged coupons have a positive effect on current sales suggesting that coupons are used to induce repurchase

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

price discrimination and retail configuration the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing a test that discriminates between price structures associated with discrimination and with cost driven competitive differentials is developed and implemented with controls for variation in outlet and market characteristics a second test based on profitability variation rejects a competitive peak load pricing explanation for the observed price dispersion the data suggest that price discrimination at the retail level adds at least 9 a gallon to the average price of full service gasoline

the welfare effects of third degree price discrimination in the author examines third degree price discrimination by an upstream monopolist in an intermediate good market discrimination is motivated by the fact that downstream firms differ in their abilities to integrate backward into supply of the input the author shows that under reasonable specifications of equilibrium price discrimination leads to all buyers facing higher input prices in other cases discrimination raises some prices and lowers others the author derives conditions under which discrimination lowers welfare by reducing total output and shows that in some markets discrimination will raise welfare by preventing socially inefficient backward integration copyright 1987 by american economic association

search with learning for differentiated products evidence from e commerce this article provides a method to estimate search costs in a differentiated product environment in which consumers are uncertain about the utility distribution consumers learn about the utility distribution by bayesian updating their dirichlet process prior beliefs the model provides expressions for bounds on the search costs that can rationalize observed search and purchasing behavior using individual specific data on web browsing and purchasing behavior for mp3 players sold online we show how to use these bounds to estimate search costs as well as the parameters of the utility distribution our estimates indicate that search costs are sizable we show that ignoring consumer learning while searching can lead to severely biased search cost and elasticity estimates

the dynamics pattern of price dispersion in retail fuel markets abstract this paper empirically investigates the dynamics of price dispersion in retail fuel markets as a response to the corresponding wholesale price changes for this purpose we take advantage of a daily dataset of prices fixed by gas stations in two spanish regions it is consistently found that retail price dispersion is temporarily enlarged as a consequence of wholesale price increases while it is reduced due to decreases the presence of asymmetries in the short run dynamics is also revealed the impact of positive changes in the wholesale price is in the first days of adjustment clearly greater the dynamics pattern could be explained at least in part by the faster response of prices in the stations associated with the two vertically integrated companies that have the largest market share i e repsol and cepsa

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

antidumping protection and r d competition in recent years antidumping protection has spread throughout the world evidence shows that antidumping often targets r d intensive sectors raising a con cern that it may adversely affect worldwide investments in r d we investigate this issue in a model of reciprocal dumping extended to a two stage game in which two firms first choose r d levels and then compete in prices we find that when a single government institutes antidumping law the protected firm decreases investment in r d while the constrained firm invests more when both governments engage in antidumping actions both firms invest more in r d than under free trade jel classification f12 f13

on two part tariff competition in a homogeneous product duopoly abstract we explore aspects of two part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage levels competition in only one price component the fee or the rate may allow both firms to enjoy positive profits if the other price component has been set at levels different enough between firms fixing one price component alters the nature of competition indirectly introducing an element of product differentiation endogenous market segmentation emerges with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm when no price component can be negative competition becomes softer profits tend to be higher but there is also a disadvantage for the firm that starts with a higher fee than that of its rival

testing models of consumer search using data on web browsing and purchasing behavior using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models we nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data moreover we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution observed search behavior for given consumers over time is more consistent with non sequential search than sequential search with learning our

globalization trade and migration undermining sustainability abstract i examine the impact of expanding international trade and migration on prospects for global sustainability from a strictly biophysical ecological behavioral perspective my starting premise is that techno industrial society is inherently unsustainable humans have a natural propensity to expand to occupy all accessible habitats and use all available resources because of continuous growth propelled by improving technology the modern human enterprise is already in a state of ecological overshoot globalization and trade exacerbate the situation by shuffling resources around and short circuiting the negative feedback that would otherwise result from local resource degradation this allows population and material growth within each individual trading region to exceed local biophysical limits this in turn accelerates the depletion of natural capital everywhere and ensures that all now trade dependent regions hit global limits simultaneously large scale migration also worsens matters by reducing negative feedback and enabling increased resource consumption moreover because resource scarcity is likely to precipitate conflict among self identifying tribal groups within multi cultural societies uncontrolled migration may create conditions that impede the implementation of policy measures required for ecological sustainability global sustainability is thus most likely to be achieved through policies that foster increased regional self reliance encourage greater investment in local natural capital and favor the development of strong diverse local economies in place such measures will raise local and therefore global bio capacities and reduce both the pull and push factors in international migration

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

market power and collusion in the ocean shipping industry is a bigger cartel a better cartel i introduction the ocean shipping industry enjoys certain conditions that are extremely favorable for collusion such as antitrust immunity for explicit pricing agreements known as conference agreements and enforcement of those agreements by the u s government consequently studies 1 purporting to show evidence of price discrimination in ocean shipping were considered by some proof of the obvious the ocean shipping industry exercises market power due to its unique regulatory environment policymakers presume that collusive behavior pervades the industry as evidenced by senator metzenbaum s statement that the american people simply can t afford to give ocean shipping conferences unbridled discretion to raise prices reduce capacity neutralize low cost competitors and eliminate services to ports or other customers 2 thus the conventional view is that liner conferences act as effective cartels if this view is correct then the cartels should become more effective as they face less competition from outsiders that have refrained from joining the cartel we test this hypothesis by examining how liner conferences behave as their competitive position changes ocean shipping has a truly unique regulatory structure reflecting fears about destructive competition and excess capacity that have existed since the late 1800s at that time joint price setting behavior among ocean carriers became a common practice antitrust immunity for joint pricing agreements has been formally provided by u s legislation since 1916 policymakers granted that immunity in exchange for active regulatory supervision 3 under the current regulatory structure defined in the shipping act of 1984 each route contains a conference that consists of all carriers choosing to participate in an explicit joint pricing agreement which is free from antitrust action 4 some carriers typically choose to remain outside the pricing agreement these carriers are known as independent carriers conferences must be open so that any carrier may join or exit a conference with limited notice and without explicit penalties both conferences and independent carriers are required to file their rates with the federal maritime commission fmc an agency of the u s government the fmc is charged with monitoring and enforcing the published rates when the fmc detects secret discounting from published rates by either a conference or independent carrier it punishes those parties involved by assessing fines 5 however conference members are allowed to publicly deviate from the conference rate by publishing their own freight rate on a particular transaction after notifying the conference of their intention to do so with few exceptions to be discussed later conferences prohibit their members from independently entering into contractual arrangements with shippers although the ocean shipping industry s regulatory structure appears conducive to collusion other aspects of the industry are not hospitable to anticompetitive behavior first the absence of statutory restrictions on entry implies that carriers are free to transfer ships from one route to another or to enter the industry de novo secondly many countries subsidize shipbuilding which industry participants claim results in substantial excess capacity lastly the heterogeneity of both carriers and shippers may impede collusive behavior 6 previous empirical studies have argued that liner conferences effectively collude based purely on their finding that freight rates increase as the value of the cargo increases since ocean shipping is now widely containerized i e diverse commodities are shipped in uniform boxes that are handled in a largely uniform manner these value based rate differences are considered evidence of price discrimination by an effective cartel the major flaw in these tests of collusive market power is that they do not account for costs that may be positively related to the product s value such as implied damage liability costs or costs related to the quality of service

the evolution of u s airline competition studies by academic economists were a significant force in the movement towards deregulation of the domestic airline industry in the early 1970s levine 1965 jordan 1970 keeler 1972 douglas and miller 1974 during the critical 1977 78 period in which deregulation was imposed first de facto by the civil aeronautics board cab and then de jure by congress the chairman and vice chairman of the cab were economists for the 14 years since deregulation economists have continued intensive study of the industry in part because of the unusual availability of reliable firm and transaction level data and in part because of the rare opportunity to observe an industry as it evolves from strict economic regulation to fairly unimpeded competition and strategic behavior the simplest prediction of economists about airline deregulation and one of the few on which nearly all economists agreed was that deregulation would improve consumer welfare in comparison to continued price and entry regulation fourteen years later nearly all economists still agree on this though the degree of enthusiasm for the deregulation outcome varies considerably there was substantial disagreement among economists about the market structure that would result because studies of scale economies in the airline industry had concluded that none existed beyond the scale of the smaller major airlines of the 1970s caves 1962 eads et al 1969 many economists argued that deregulation would result in more than the 11 major airlines that existed at the time of deregulation others predicted that only a few or possibly only one airline would survive at a large scale two noted university of chicago economists sam peltzman and lester telser made a bet in 1979 on whether

commodity market dynamics and the joint executive committee 1880 1886 using weekly spot and future commodity prices in chicago and new york we construct expected transportation rates for grain between these two cities expected inventory levels in new york and realized errors in the expectations of such variables we incorporate these exogenous commodity market dynamics into porter s 1983 structural modeling of the joint executive committee railroad cartel as in porter we model marginal cost as a parametric function of instrumented output among other factors unlike porter we model pricing over marginal cost as a nonparametric function of a set of variables which include expectations of deterministic demand cycles and cartel stability we estimate the pricing and demand equation simultaneously and semiparametrically our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles as modeled in haltiwanger and harrington 1991 periods of cartel instability are proven to be trigger

third degree price discrimination in the presence of congestion externality this paper analyzes third degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served the model features the business passenger and leisure passenger markets where business passengers exhibit a higher time valuation and a less price elastic demand than leisure passengers our main result is the identification of the time valuation effect of price discrimination which can work in the opposite direction as the well known output effect on welfare this time valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output

price dispersion in mortgage markets using transaction level data on canadian mortgage contracts we document an increase in the average discount negotiated off the posted price and in rate dispersion our aim is to identify the beneficiaries of discounting and to test whether dispersion is caused by price discrimination the standard explanation for dispersion in credit markets is risk based pricing our contracts are guaranteed by government backed insurance so risk cannot be the main factor we find that lenders set prices that reflect consumer bargaining leverage not just costs the presence of dispersion implies a lack of competition but our results show this to be consumer specific

a bertrand model of pricing and entry abstract we analyze an oligopolistic pricing and entry model in which there is a sunk cost of entry and in which firms outputs are homogeneous firms pure strategies consist of a binary entry decision and conditional on entry a uniform or non linear price schedule there does not exist a pure strategy nash equilibrium in this model so we analyze the symmetric mixed strategy equilibrium the main result is that if there exists a positive sunk cost of entry then an increase in the number of potential competitors puts more probability weight on higher prices this result is counter to the usual intuition that underlies current antitrust policy

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

selling costs and switching costs explaining retail gasoline margins recent theoretical work has shown that price discrimination can take place in imperfectly competitive as well as monopoly markets the persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets this article studies a number of cost based explanations for such gasoline pricing as well as the possibility of price discrimination the analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station the conclusions highlight the influence of shopping or search costs on pricing decisions even in markets thought to be quite competitive

airline pricing behavior under limited inter modal competition this paper empirically analyzes airline pricing for short haul flights in contexts with no credible threat of inter modal competition to this end we explore the southern italian market since it is less accessible by other transport modes and thus fares are the direct outcome of air related competition we show in fact that market power matters depending on the level of intra modal competition and that airlines apply differentiated mark ups besides consistent with the implementation of inter temporal price discrimination ipd we find a non monotonic inter temporal profile of fares with a turning point included in the interval of the 43rd to 45th days before departure finally we provide evidence that in more competitive markets airlines are more likely to engage in ipd jel l11 l13 l93

revisiting dynamic duopoly with consumer switching costs abstract the degree of collusiveness of a market with consumer switching costs is analyzed in an infinite horizon model of duopolistic competition in contrast with previous analyses we assume that firms compete for the demand for a homogeneous good by setting prices simultaneously in each period this problem is formulated as a simple stochastic game and a symmetric stationary markovian perfect equilibrium with distinctive economic features is studied we show that switching costs unambiguously relax price competition in equilibrium but that on the contrary they may make tacit collusion more difficult to sustain journal of economic literature classification numbers c73 d43 l13

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

a theory of quality related differences in retail margins why there is a premium on premium gasoline this paper develops a theory of vertical and horizontal product differentiation to explain observed price cost margin differentials for goods that differ in quality the difference in price cost margins between the high and low quality goods is shown to depend positively on consumers average valuation for incremental increases in quality and positively on the distance to each competitor s closest rival these predictions are largely supported using an extensive station level data set of premium and regular unleaded gasoline prices from the los angeles basin area from 1992 1995

how economic growth becomes a cost the scarcity multiplier competent macro allocation of natural capital would allow micro allocation by economics to be fully useful and may help prevent the latter being confused with the former this macro allocation requires social choice so to see whether it is likely to be competent the effectiveness of democratic politics is investigated dysfunction is predicted because democratic institutions produce elements of irresponsibility and ignorance these permit inflation of want by supply iws a positive feedback in which wants are increased by their supply provoking more supply hence more want four iws systems combine under common conditions to indefinitely escalate the scarcity of natural capital a crucial failure of macro allocation this scarcity multiplier causes apparently rational attempts to satisfy a few wants to exacerbate many increasing dissatisfaction institutions for deliberative public participation may enable democracies to recognize and control iws unless this is done the scarcity multiplier may make cost benefit analysis misleading it may make the costs of development projects exceed their benefits in proportion to their financial success

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

dealer price discrimination in new car purchases evidence from the consumer expenditure survey this paper documents the variation in dealer discounts for new cars using transactions price data from the consumer expenditure survey consumer specific characteristics fail to explain dealer discounts whereas model market specific and purchase transaction variables e g first time purchase trade in and financing through dealer do explain them the results contradict earlier findings of race and gender discrimination based on a controlled experiment this contradiction is reconciled by examining the higher moments of the empirical discount distribution while mean and median markups do not vary by race and gender minority purchases are characterized by higher dispersion this may rationalize the disparate treatment of minorities by dealers documented in the controlled experiment

fighting collusion by permitting price discrimination we investigate the effect of a ban on third degree price discrimination on the sustainability of collusion we build a model with two firms that may be able to discriminate between two consumer groups two cases are analyzed i best response symmetries so that profits in the static nash equilibrium are higher if price discrimination is allowed ii best response asymmetries so that profits in the static nash equilibrium are lower if price discrimination is allowed in both price discrimination scenarios firms discount factor has to be higher in order to sustain collusion in grim trigger strategies than under uniform pricing

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

a model of search with price discrimination abstract we introduce observable heterogeneity across buyers into a model of simultaneous search buyers differences are informative about their willingness to search giving rise to price discrimination even if they all have the same willingness to pay we analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not we find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution interestingly for normally distributed search costs there is an inverted u shape relationship between prices and buyers size similarly a ban on price discrimination hurts small and large buyers to the benefit of the medium size ones

dynamic price discrimination with asymmetric firms this paper considers variants of a dynamic duopoly model where one firm has a stronger market position than its competitor consumers past purchases may reveal their different valuations for the two firms products price discrimination based on purchase histories tends to benefit consumers if it does not cause the weaker firm to exit otherwise it can harm consumers the effect of price discrimination also depends on firms cost differences market competitiveness and consumers time horizon the stronger firm may price below cost in the presence of consumer switching costs with the purpose and effect of eliminating competition

remittances and the migration development nexus challenges for the sustainable governance of migration abstract this paper argues that possible effects of international migration on the environment have to be analysed with respect to both the three dimensions of sustainability and the migration stakeholders it has recently been put forward that immigration has to be reduced for environmental reasons in contrast this paper embarks from the view that reducing immigration is costly ineffective and ethically troublesome it argues that there are strong interrelations between development and migration suggesting that one has to consider development problems when discussing migration in this context the enormous amount of remittances of migrant workers could yield considerable potential for promoting sustainable development sustainable governance is needed to manage this potential wisely in doing so it is essential to consider the migration stakeholders sending and receiving countries and the migrants themselves and balance the three dimensions of sustainability

price discrimination in oligopoly evidence from regional newspapers recent theoretical work has shown that the incentive to target rival firms customers with low prices can increase price discrimination and that the strength of the incentive depends on a firm s market position using data on swedish newspaper subscriptions we find strong support for these predictions newspapers with a local competitor sell a larger part of their circulation at a discount than monopoly newspapers moreover in competitive markets the use of discounts is inversely related to the newspaper s market share we find no evidence that price discrimination based on observable and exogenous characteristics is influenced by the market structure

antitrust transaction costs and merger simulation with nonlinear pricing abstractthis article explores the relationship between transaction costs and antitrust it makes three points first the usual antitrust analysis can be seriously misleading as a guide to consumer or society welfare because it assumes that pricing is linear and uniform but the type of pricing endogenously depends on transaction costs including information costs second two key issues in any antitrust analysis are whether transaction costs change as a result of the action under scrutiny and regardless of whether they change how the existence of nonlinear pricing alters the usual antitrust analysis we develop a merger simulation model with nonlinear pricing to illustrate how misleading the standard analysis can be third since transaction costs influence the ability of various coalitions of consumers distributors and manufacturers to form cooperative game theory can provide a unifying perspective into what situations might give rise to the creation and exploitation of market power

the efficiency of advance purchase discounts in the presence of aggregate demand uncertainty abstract the pricing behavior of two airlines is examined one is operated by a welfare maximizing social planner the other by an unregulated monopolist total capacity is fixed and aggregate demand is uncertain it is shown that advance purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight it is further shown that the planner may offer larger or smaller discounts than the monopolist

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

non discrimination clauses in the retail energy sector the british energy regulator will soon review a non discrimination licence condition which it imposed to ensure that energy retailers charge the same mark up in different regions many consumers are loyal to incumbent firms necessitating heavy discounting by entrants to attract customers which had led to regional price discrimination matching characteristics of the energy market to models of discrimination we identify the necessary conditions for the licence condition to have a positive effect for consumers and explore whether the policy has helped potentially vulnerable consumers we conclude that the most likely effect of the licence condition is to reduce competition in the mainstream energy markets and welcome the regulator s latest review of the retail market

tenure dependence in consumer firm relationships an empirical analysis of consumer departures from automobile insurance firms a typical pattern in markets featuring long term consumer firm relationships is for departure probabilities to decline with tenure a crucial question is whether this actually implies increasing consumer preference for firms if so firms should actively try to convince consumers to remain through the early periods of the relationship and should enter new markets quickly however the pattern can also be explained by selection on unobserved heterogeneity the challenge is to use the data available in these markets generally details on the consumers of one firm to distinguish between these explanations i rely on individual price histories in auto insurance findings include an economically relevant level of both relationship effects and heterogeneity but a much more important role for heterogeneity

complementary system perspectives in ecological macroeconomics the example of transition investments during the crisis globally societies are facing a number of interrelated environmental economic and social crises this paper is intended to contribute to the development of an ecological macroeconomics that addresses these multiple crises in combination insights from different research communities will be included in this effort taking an ecological economic understanding of sustainability as the point of departure and inspired by systems thinking it is discussed which economic sub systems should be in focus for sustainability transitions and whether relevant guides for sustainability can be formulated for these systems in particular the focus is on systems that are decisive for resource consumption and pollution although their influence on these is indirect a simple typology of sub systems is suggested and applied in relation to an example that highlights the importance of the interplay between macroeconomic provision and distribution systems the example concerns investments in sustainability transitions of provision systems and demonstrates the complexities of implementing such transformations during the economic crisis it also addresses the need for ecological macroeconomics to develop a third position beyond austerity policies and keynesian approaches

price discrimination in australia s retail electricity markets an analysis of victoria southeast queensland when capital intensive monopoly industries are restructured and deregulated consumer prices commence a natural drift from regulated uniform average cost tariffs to competitive differential prices and this can raise problems for policymakers deep discounts are welcomed high standing offers are not but price discrimination is unremarkable in economics indeed in industries where fixed sunk costs represent a significant portion of total cost discriminatory pricing is usually welfare enhancing conversely theory predicts and empirical evidence confirms that regulatory efforts to cherry pick differential prices in asymmetric markets will damage consumer welfare in this article we analyse differential retail electricity offer prices in the australian states of victoria and queensland and contrast these with industry average total cost and the marginal cost of retail supply we find deregulated victoria displays high price dispersion with standing offer tariffs 10 above industry average total cost and marginal offers at break even prices i e 20 below average total cost in the semi regulated southeast queensland market where a regulated price cap exists there is lower dispersion but marginal offers include a 6 7 retail mark up efficient pricing requires the marginal unit produced to be priced at marginal cost and victoria meets this criteria but we identify an episode of inter consumer misallocation due to high standing offers we conclude policy initiatives designed to help firms shift vulnerable households from standing offer tariffs is desirable

an empirical model of search with vertically differentiated products this paper presents a nonsequential search model that allows for vertical product dierentiation in the unique symmetric equilibrium firms with dierent characteristics draw utilities from a common utility distribution because the firms dier in their characteristics this leads to dierent price distributions the model therefore provides a theoretical rationale for explaining price dispersion as a result of quality dierences and search behavior of consumers together using the equilibrium conditions derived from the model it is shown how to estimate search costs by maximum likelihood using only price data a data set on prices from dutch supermarkets reveals that the amount of search has decreased over the sampling period moreover ignoring vertical product dierentiation results in an overestimation of search costs

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

price discrimination in grocery trade evidence from italy this paper investigates the determinants of price dispersion between staple and non staple goods in grocery retailing as the result of pricing decisions by multiproduct firms theoretical predictions about the nature of supermarkets pricing behaviour are compared and tested empirically using disaggregated data from the italian grocery trade over the period 1990 1992 the empirical results provide evidence for the existence in all types of retail organization of the form of price discrimination suggested by bliss particularly for specialist shops the results are consistent with discrimination due to the exploitation of consumers switching costs

sectoral conflict over stabilisation policies in small open economies a small open economy is characterized by a two sector model with tradables and non tradables stabilization policies typically have unequal effects on these two sectors and expansion of total output often requires contraction in one sector such situations make difficult obtaining effective consensus on the appropriate stabilization policy expansionary fiscal policy requires a contraction in one sector after the labour market adjusts to the disturbance monetary policy is ineffective under fixed exchange rates and may not have sectoral conflict under flexible exchange rates sectoral conflict can be eliminated by designing policy combinations that maintain a given relative price of nontradables this abstract was borrowed from another version of this item

macroeconomic narratives in a world of crises an analysis of stories about solving the system crisis since the financial crisis in 2008 a series of publications on macroeconomic responses to the compound crises of the economy and the environment have emerged under labels such as green new deal green growth and the great transition attempts at offering coherent responses to the crises have been made these responses have in common that they all present a large number of policy proposals for ways in which to solve the current crises and achieve a sustainable economy this article provides a mapping of a selection of such responses and an analysis of their content the analysis combines discourse theory and narrative analysis and investigates discourses by studying the narratives they produce the study thus contributes to the long line of analyses on discourses on sustainable economy empirically by investigating and analysing a number of macroeconomic proposals for solving the system crisis and theoretically by elaborating on the concept of narrative dynamics in relation to persuasive strength in political decision making

a comment on revisiting dynamic duopoly with consumer switching costs a comment on revisiting dynamic duopoly with consumer switching costs eric t anderson nanda kumar and surendra rajiv kellogg school of management northwestern university 2001 sheridan road evanston il 60208 usa school of management university of texas at dallas p o box 830688 richardson tx 75083 0688 usa nus business school national university of singapore biz 1 04 20 1 business link singapore 117592

welfare increasing third degree price discrimination when demand functions in different markets are derived from distributions of reservation prices that differ only in their means conditions exist such that third degree price discrimination leads to greater total output and greater total welfare welfare is higher with discrimination than with a uniform price when demand functions are derived from logistic distributions with different means welfare and consumer surplus are higher with discrimination for demands derived from a distribution related to the pareto in general whether discrimination increases total output depends on demand being more convex in markets in which prices fall with discrimination than in those in which prices rise

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

a simple framework for analysing various real aspects of stabilisation and structural adjustment policies this article shows how a simple geometric framework containing a real model based on the standard two good three factor trade theoretic model and a monetary model of the domestic banking system can be used to analyse the changes in the real and nominal values of various economic variables of concern resulting from stabilisation and structural adjustment policies

reverse price discrimination with bayesian buyers this paper studies price discrimination under the situation in which buyers prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter the buyers interpret new information via bayes rule we show that in this environment prices are not monotone in buyers prior valuations interestingly this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer reverse price discrimination we derive this result in both monopoly and duopoly markets

monetary nominal income and exchange rate targets in a small open economy abstract in this paper i examine the properties of monetary nominal income and exchange rate targets as stabilization policies in an open economy perfect capital mobility and a wide variety of transitory random shocks is assumed nominal wages are assumed to have been set in advance of the realization of the shocks none of these rules is in general sufficient to minimize the welfare cost of aggregate fluctations and none necessarily dominates all others under the assumption that monetary control is subject to random errors optimal policy implies reactions to all observable shocks and is characterized by heavy exchange market intervention

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

first degree price discrimination goes to school personalized pricing is widely discussed but seldom observed making studies of its efficacy rare yet first degree price discrimination is common in the pricing of higher education and i use data on prices and the characteristics of students admitted to a professional graduate program at a public university to estimate a matriculation demand function i then derive linear pricing functions that maximize revenue for a target number of students by allowing these functions to depend on progressively richer sets of observables i explore the effect of personalization of pricing on profit tailoring prices to a one dimensional measure of student quality would raise revenue by 2 2 per cent above the revenue with uniform pricing pricing based on both student quality and state residency raises revenue by 8 4 per cent and further tailoring based on available observables raises prices 9 0 per cent above the maximum revenue under uniform pricing pricing that obeys current statutory tuition limits raises revenue less but still by just over half as much i also infer the welfare weights that the pricing process implicitly attaches to student characteristics

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

evidence of directional price discrimination in the u s airline industry abstract this paper explores possible determinants that may affect an airline s decision to charge passengers different roundtrip fares depending on trip origin a case of directional price discrimination such fare differences cannot be the result of differences in cost as the cost of flying a roundtrip passenger does not significantly differ depending on direction it is argued that directional fare differences result from airlines recognizing that passenger price elasticities differ between route endpoints a price discriminating airline will then charge a higher roundtrip fare at the endpoint where the passenger price elasticity of demand is comparatively lower evidence is found suggesting that airlines do use differences in income to price discriminate when setting roundtrip fares fares are found to be 0 18 0 43 higher on average for each 1000 difference in average per capita income between origin and destination metro areas this finding is sensible assuming that higher incomes reduce the price elasticity of demand for air travel with richer passengers being less sensitive to the cost of travel

dynamic oligopoly pricing evidence from the airline industry we explore how pricing dynamics in the european airline industry vary with the competitive environment our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination first the rate at which prices increase towards the scheduled travel date is decreasing in competition supporting the idea that competition restrains the ability of airlines to price discriminate second the sensitivity to competition is substantially increasing in the heterogeneity of the customer base reecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination these patterns are quantitatively important explaining about 83 percent of the total within ight price dispersion and explaining 17 percent of the observed cross market variation of pricing dynamics

an empirical investigation of the welfare effects of banning wholesale price discrimination rand 054 rand2007 cls 1994 07 13 v1 2u standard latex document class rand rand 054 dispatch 12 7 2008 ce n a journal msp no no of pages 26 pe sharon rand journal of economics vol 40 no 1 spring 2009 pp 20 45 an empirical investigation of the welfare effects of banning wholesale price discrimination sofia berto villas boas economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination if downstream cost differences exist then discrimination shifts production inefficiently toward high cost retailers so a ban increases welfare if differences in price elasticity of demand across retailers exist discrimination may increase welfare if quantity sold increases so a ban reduces welfare using retail prices and quantities of coffee brands sold by german retailers i estimate a model of demand and supply and separate cost and demand differences simulating a ban on wholesale price discrimination has positive welfare effects in this market and less if downstream cost differences shrink or with less competition introduction wholesale price discrimination means that an upstream firm sets different prices for the same product for various downstream retailers wholesale price discrimination is commonly practiced in many markets examples include markets such as petroleum distribution steel heavy trucking tobacco and pharmaceuticals in several countries milk and other dairy products are sold using government administered or sanctioned discriminatory pricing schemes wholesale price discrimination practices are also used for services such as loans insurance and advertising 1 competition authorities have been concerned with wholesale price discrimination the european union treaty s article 82 c prohibits practices where a dominant firm would place trading partners at a competitive disadvantage the u s robinson patman act forbids discriminat ing in price between different purchasers where the effect may be to lessen competition unless the university of california berkeley sberto are berkeley edu i thank the editor igal hendel and two anonymous referees for many helpful comments and max auffhammer cyndi berck peter berck gal hochman silke januszewski forbes george judge kai uwe k uhn diana lazo mark muendler aviv nevo ariel pakes jeff perloff andrew sweeting miguel villas boas and participants at uc san diego university of michigan the inra idei conference in toulouse and the university of british columbia summer conference in industrial organization for their suggestions i thank daniel klapper for letting me have access to the data support from the giannini foundation and from an aes grant are gratefully appreciated see for gasoline markets texaco v hasbrouck 496 us 543 no 87 2048 1990 and the new york state motor fuel marketing practices act for steel chan hall and rust 2003 for heavy trucking volvo trucks north america inc v reeder simco gmc inc docket no 04 905 for tobacco brooke group ltd v brown and williamson tobacco corp 509 us 209 no 92 466 1993 for wholesale pharmaceuticals see http www datcp state wi us trade business unfair comp drug price jsp for dairy markets see for example gardner 1984 and for services see givens 1983 c 2009 rand copyright

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

the political economy of economic liberalization two of the major policy problems facing governments of developing countries in the 1 980s have been unsustainable external and internal disequilibria and implementation of politically feasible stabilization cum liberalization programs which become necessary to correct these imbalances this article discusses these crises and subsequent policy reform the analysis suggests that balance of payments and fiscal deficits are frequently the result of use of an incorrect accounting system in a fixed exchange rate economy and of public sector expansion beyond its economically feasible size that governments usually seek to liberalize their economies during a crisis to regain control when the growth of the transfer state has led to generalized tax resistance avoidance or evasion that reduction of the government role will be required to alleviate these crises that sharp departures from past policies rather than gradual reform may be politically necessary and that contrary to the current technocratic opinion on this matter the sequencing of a consistent and credible package of reforms which will most effectively reduce the costs of adjustment is initial liberalization of domestic capital markets simultaneous with cuts in the fiscal deficit followed by floating the exchange rate and then commodity market liberalization with the growing importance of internal monetary fund imf stabilization and world bank structural adjustment programs there has been concern about the proper sequencing of the standard stabilization cum liberalization measures contained in these packages in particular there is grave concern at the very mixed and in some cases disastrous effects of liberalization attempts on incomes and employment in the southern cone of latin america in the late 1970s and early 1 980s much of the existing discussion of the order of liberalization is conducted within the traditional technocratic framework which seeks to determine the welfare cost minimizing deployment of policies in the standard stabilization and 1 this assumes a benevolent and well informed government maximizing a social welfare function

welfare and output in third degree price discrimination a note abstract one main result on the welfare effects of third degree price discrimination by a monopolist is that an increase in total output is a necessary condition for welfare improvement this note provides two examples showing that this proposition does not generalize to an oligopoly with heterogenous firms in these examples price discrimination makes competition more favorable to the low cost firm this induces a cost saving that overcomes the welfare loss associated with price discrimination

the welfare effects of third degree price discrimination in a differentiated oligopoly this article examines the welfare effects of third degree price discrimination under oligopolistic competition with horizontal product differentiation we derive a necessary and sufficient condition for price discrimination to improve social welfare the degree of substitution must be sufficiently greater in the strong market where the discriminatory price is higher than the uniform price than in the weak market where it is lower it is verified however that consumer surplus is never improved social welfare improves solely owing to an increase in the firms profits in the case of linear demands jel d43 l11 l13 i introduction this article examines the welfare effects of oligopolistic third degree price discrimination explicitly considering product differentiation as a source of market power and strategic interaction product differentiation is one of the main reasons why firms can enjoy market power it enables them to sell products that are no longer perfect substitutes for example coca cola and pepsico sell similar types of soda although it is arguable that they differ in taste each firm thereby attracts some consumers over another as a form of price discrimination coca cola was once reported to be testing a vending machine that would automatically raise prices in hot weather 1 although the plan triggered nationwide controversy and coca cola had to abandon the project as a result it could have changed the regime of uniform pricing to one of price discrimination in the soda market how would the resulting change affect consumer welfare and firms profits in other words is third degree price discrimination good or bad answering this question is important because it helps us to evaluate price discrimination under oligopoly in this article we focus on horizontal product differentiation to consider substitutability as well as complementarity 2 by assuming a linear quadratic utility function of a representative consumer and focusing on the symmetric equilibrium of a pricing game we characterize the conditions relating to such demand properties as substitutability and complementarity required for price discrimination to improve social welfare more specifically we derive a necessary and sufficient condition for price discrimination to improve social welfare the degree of substitution must be sufficiently greater in the strong market where the discriminatory price is higher than the uniform price than in the weak market where it is lower it is also shown that aggregate output must increase for price discrimination to improve social welfare we verify however that consumer surplus is never improved by price discrimination welfare improvement from price discrimination is solely owing to an increase in firms profits in the example above the degree of substitution would be higher in the strong market i e when the temperature is high because consumers care less about which brand when it is hot weather our analysis below implies that social welfare might improve in this case the degree of substitution can vary across markets even if consumers in each market face exactly the same products because consumers taste depends on various market specific factors such as geographical and natural conditions if the strong market is where consumers demand a product more eagerly caring less about which brand in the above example individuals demand soda more eagerly in hot weather then our results suggest that price discrimination has large potential to improve social welfare 3 why does allowing price discrimination improve social welfare notice that there are two forces that determine equilibrium prices in price setting oligopoly a larger market size raises the price whereas a larger substitutability parameter lowers the price for price discrimination to raise social welfare it is necessary that a high degree of substitutability mitigates an increase in the discriminatory price in the larger market

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing