01 gennaio 2014

Author: Hinnerk Gnutzmann 

ABSTRACT

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 pro ts 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.

Keywords: History-based price discrimination, asymmetric price discrimination, switching cost

JEL Codes: L13, L41

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