Competitive differential pricing

1982

Economic Theory Bulletin, 2014

This paper presents new results on the welfare e¤ects of thirddegree price discrimination under constant elasticity demand. We show that when both the share of the strong market under uniform pricing and the elasticity di¤erence between markets are high enough, then price discrimination not only can increase social welfare but also consumer surplus. (JEL D42, L12, L13) Financial support from the Ministerio de Economía y Competitividad (ECO2012-31626), and from the Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged. We would like to thank Ilaski Barañano and Ignacio Palacios-Huerta for helpful comments.

Canadian Journal of Economics/Revue canadienne d'économique, 2008

This paper compares one-part pricing and two types of two-part pricing in a general discretecontinuous choice model, providing more extensive welfare results than prior literature. Under two-part pricing, …rms may set …xed fees with or without "unit-price commitment." When unitprice commitment is present, both …xed fees and unit prices are set before consumers choose their exclusive suppliers. In the absence of unit-price commitment, consumers choose exclusive suppliers based on known …xed fees and anticipated future unit prices, resulting in high unit prices consistent with models of "aftermarket monopolization." Of the three possible pricing policies, we …nd that two-part pricing with unit-price commitment is …rms' dominant unilateral pricing policy, and it also yields the highest joint pro…ts (under appropriate demand assumptions). In terms of both consumer and social welfare, two-part pricing without unit-price commitment is dominated by the other pricing policies. With su¢ ciently elastic usage demand and su¢ ciently small customer-speci…c …xed costs, one-part pricing produces the highest consumer and social welfare, but the lowest …rm pro…ts, of the three pricing policies.

Price discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare effects - even though prices and industry profits fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric firms yielded sharply different results, the pro-competitive effect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare.

Metroeconomica, 2002

Canadian Journal of Economics-revue Canadienne D Economique, 2011

This paper empirically examines the joint pricing decision of products in a firm's product line.

International Journal of Economic Theory, 2010

In industries like telecom, postal services or energy provision, universal service obligations (uniform price and universal coverage) are often imposed on one market participant. Universal service obligations are likely to alter firms' strategic behavior in such competitive markets. In the present paper, we show that, depending on the entrant's market coverage and the degree of product differentiation, the Nash equilibrium in prices involves either pure or mixed strategies. We show that the pure strategy market sharing equilibrium, as identified by Valletti, Hoernig, and Barros (2002), defines a lower bound on the level of equilibrium prices.

SSRN Electronic Journal, 2015

A. The paper proves the existence of a subgame perfect Nash equilibrium in a vertically differentiated duopoly with uncovered market, for a large set of symmetric and asymmetric distributions of consumers, including, among others, all logconcave distributions. The proof relies on the 'income share elasticity' representation of the consumers' density function, which ensures the analytical tractability of the firms' optimality conditions at a high level of generality. Some illustrative examples of the solution are offered, in order to assess the impact of distributive shocks on the equilibrium market configuration.

Journal of Applied Economics & Business Research, 2023

This paper uses both a geometrical and mathematical analysis to explain monopolistic third-degree price discrimination, and it also shows how price discrimination affects society. A frequent policy question in the literature on price discrimination is whether to allow third-degree price discrimination or enforce uniform pricing. A key feature to understanding this issue in the context of imperfectly competitive markets is the impact of price discrimination on output. The article shows that a monopoly facing downward-sloping linear demands and constant marginal costs will obtain higher profits under price discrimination than under a single-price strategy, but price discrimination lowers welfare if the total output does not change. When price discrimination causes total output to increase, then this practice will have a beneficial effect on overall welfare.

This study complements the results developed by Häckner (2000) and Hus and Wang (2005). It constructs a n-firm oligopoly model with prod- uct differentiation and compares optimal prices, profits and welfare ob- tained under Cournot competition with those under Bertrand competi- tion. Three main results are demonstrated: (1) higher-qualified firms charge higher price under Bertrand competition than under Cournot com- petition when the goods are complements; (2) it depends on the ratio of the market average quality to the individual quality whether Cournot profit is higher than Bertrand profit or not; (3) social welfare (the sum of consumer surplus and profits) can be higher under Cournot competition than under Bertrand competition in the case of higher-qualified firms.