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Revisiting the Relationship between Competition and Price Discrimination†

Revisiting the Relationship between Competition and Price Discrimination† AbstractWe revisit the relationship between competition and price discrimination. Theoretically, we show that if consumers differ in terms of both their underlying willingness-to-pay and their brand loyalty, competition may increase price differences between some consumers while decreasing them between others. Empirically, we find that competition has little impact at the top or the bottom of the price distribution but a significant impact in the middle, thus increasing some price differentials but decreasing others. Our findings highlight the importance of understanding the relevant sources of consumer heterogeneity and can reconcile earlier conflicting findings. (JEL D12, D22, D43, L13, L93, M31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Revisiting the Relationship between Competition and Price Discrimination†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20160252
Publisher site
See Article on Publisher Site

Abstract

AbstractWe revisit the relationship between competition and price discrimination. Theoretically, we show that if consumers differ in terms of both their underlying willingness-to-pay and their brand loyalty, competition may increase price differences between some consumers while decreasing them between others. Empirically, we find that competition has little impact at the top or the bottom of the price distribution but a significant impact in the middle, thus increasing some price differentials but decreasing others. Our findings highlight the importance of understanding the relevant sources of consumer heterogeneity and can reconcile earlier conflicting findings. (JEL D12, D22, D43, L13, L93, M31)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2018

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