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Price Discrimination (price + discrimination)
Selected AbstractsINCOME DISPERSION AND PRICE DISCRIMINATIONPACIFIC ECONOMIC REVIEW, Issue 1 2006Yong He We first derive the linear demand curve in each market under plausible conditions, and then show that more markets (and consumers) are excluded under uniform pricing the higher are the inter-market income differences. We also show that adding markets, even of lower income levels than those of existing markets, helps to decrease prices and thus cause more markets to be served. Implications of intra-market income dispersion are also explored. [source] DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS,THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 4 2008YONGMIN CHEN 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. [source] Rebates, inventories, and intertemporal price discriminationECONOMIC INQUIRY, Issue 4 2000RW Ault We demonstrate that universally redeemed rebates can increase manufacturer profits by reducing the incentives of downstream retailers to hoard inventories when optimal wholesale prices vary predictably over time. By bypassing retailers and making direct contracts with buyers, the manufacturer can increase the variations in effective prices paid by consumers without concomitantly creating larger incentives for retailers to hold inventories. During profitable, high-demand periods, manufacturer revenues are ordinarily constrained by,competition'from retailer inventories, thus limiting profits. However, by selectively offering rebates to consumers while maintaining high wholesale prices, low-demand periods can be accommodated without inducing retailer hoarding. [source] Parallel trade, price discrimination, investment and price capsECONOMIC POLICY, Issue 44 2005Stefan Szymanski SUMMARY Parallel trade Parallel trade is the resale of a product by a wholesaler in a market other than that intended by the manufacturer. One of its consequences is that manufacturers may be prevented from price discriminating between markets that have different willingness to pay for the product in question. Some legal regimes give the manufacturer the right to prohibit parallel trade, but others do not. We examine the policy implications of parallel trade in a world in which manufacturers invest in product quality, and have the possibility to develop different quality variants of their goods. We also consider the possibility that the authorities may impose price caps and compulsory licensing (as commonly occurs for some pharmaceutical products). We find that taking investment incentives into account makes parallel trade much less likely to enhance overall welfare, which implies that parallel trade in products intensive in R&D, such as pharmaceuticals, is less desirable than in fields such as branded consumer products. We also find that, somewhat surprisingly, the threat of parallel trade does not induce firms to market inferior versions of their products in poor countries. However, parallel trade is less likely to be detrimental to welfare when there are price caps, since compulsory licensing can mitigate the major cost of parallel trade (namely a refusal to supply a poor country market). , Stefan Szymanski and Tommaso Valletti [source] Activity-Based Pricing in a MonopolyJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2003V. G. Narayanan abstract In this article, I study the interaction between cost accounting systems and pricing decisions in a setting where a monopolist sells a base product and related support services to customers whose preference for support services is known only to them. I consider two pricing mechanisms,activity-based pricing (ABP) and traditional pricing,and two cost-accounting systems,activity-based costing (ABC) and traditional costing, for support services. Under traditional pricing, only the base product is priced, whereas support services are provided free because detailed cost-driver volume information on the consumption of support services by each customer is unavailable. Under ABP, customers pay based on the quantities consumed of both the base product and the support services because detailed cost-driver volume information is available for each customer. Likewise, under traditional costing for support services the firm makes pricing decisions on cost signals that are noisier than they are under ABC. I compare the equilibrium quantities of the base product and support services sold, the information rent paid to the customers, and the expected profits of the monopolist under all four combinations of cost-driver volume and cost-driver rate information. I show that ABP helps reduce control problems, such as moral hazard and adverse selection problems, for the supplier and increases the supplier's ability to engage in price discrimination. I show that firms are more likely to adopt ABP when their customer base is more diverse, their customer support costs are more uncertain, their costing system has lower measurement error, and the variable costs of providing customer support are higher. Firms adopt ABC when their cost-driver rates for support services under traditional costing are noisier measures of actual costs relative to their cost-driver rates under ABC and when the actual costs of support services are inherently uncertain. I also show that cost-driver rate information and cost-driver volume information for support services are complements. Although the prior literature views ABC and activity-based management (ABM) as facilitating better decision making, I show that ABC and ABP (a form of ABM) are useful tools for addressing control problems in supply chains. [source] What is Antidumping Policy Really About?JOURNAL OF ECONOMIC SURVEYS, Issue 4 2000Gunnar Niels Dumping is whatever you can get the government to act against under the antidumping law. J. Michael Finger (1993, p.viii). Antidumping policy has become one of the most important instruments for protection in the international trade system, but at the same time it is the subject of an intense, though rather chaotic, debate. This paper provides an overview of the antidumping literature and the current issues. First it describes the origins of antidumping policy and provides some basic statistics on its current use drawn from several empirical studies. Next the paper discusses the economic foundations of antidumping law by examining the traditional and modern theories of dumping, as well as the industrial organization literature on price discrimination and predatory pricing. It is demonstrated that those economic foundations are weak. The paper also considers the fairness rationales for antidumping policy. Finally, it addresses the criticisms of antidumping laws, in particular in the context of the current antidumping versus competition policy debate, and discusses a variety of proposals for reform that have been made. The paper shows that the 1997 ,cease fire' agreement between Canada and Chile is a promising approach toward reform of antidumping policy. [source] A Model of Direct and Intermediated SalesJOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 2 2006Terrence Hendershott We examine a model in which an upstream firm can sell directly online and through heterogeneous intermediaries to heterogeneous consumers engaging in time-consuming search. Direct online sales may be more or less convenient and involve costly returns if the good fits consumers poorly. Direct selling appeals to higher-value consumers and increases the upstream firm's profits by allowing price discrimination. Competition and segmentation due to direct sales results in lower intermediary prices, making all consumers better off. Thus, entry by an upstream firm increases consumer surplus at the expense of intermediaries with the net result being an increase in social welfare. [source] Trade implications of price discrimination in a domestic marketAGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 1 2010Nobunori Kuga This study examines how domestic price discrimination between fluid and manufacturing milk influences dairy trade. Two types of dairy models are used for the study. The first one is a stylized mathematical model which is used to explore the relative trade effects of domestic price discrimination accompanied with revenue pooling mechanism versus border measures in dairy product markets. The second one is a partial equilibrium, multiple-region model of dairy policy and trade, which is used to see the empirical implication of domestic price discrimination for six major dairy producers. The analytical results identify the trading status as the key to determine the relative trade effects. While domestic price discrimination is always less trade distorting than border measures in a net-importer case, the relative trade distortiveness depends on the export volume in a net exporter case. The theoretical possibility that domestic price discrimination is more trade distorting than border measures is found when the ratio of dairy export to domestic manufacturing milk consumption is very high. The results also indicate that while the both support measures increase dairy export, domestic price discrimination may place greater economic burden on fluid milk consumers and less economic burden on tax payers than border measures. In addition, the results imply that domestic price discrimination schemes can be effective trade protective measures for Canada, Japan and the United States, where the schemes are currently being implemented. © 2010 Wiley Periodicals, Inc. [source] Coupons and price discrimination in vertically-correlated marketsMANAGERIAL AND DECISION ECONOMICS, Issue 1 2004Jin-Li Hu This research analyzes the non-cooperative and cooperative strategies with respect to manufacturer and retailer coupons. In a model with one manufacturer selling its product to one retailer, it is found that the retailer can achieve third-degree price discrimination equilibrium in retail markets by issuing coupons to demanders with higher elasticity. Although facing only one retailer, the manufacturer can also achieve the same third-degree price discrimination equilibrium by issuing coupons directly to demanders of higher elasticity. However, when only one firm issues the coupon, both manufacturer and retailer coupons can help alleviate the channel profit loss due to double marginalization. If the manufacturer and the retailer non-cooperatively issue coupons, then the subgame-perfect Nash equilibrium outcomes are equivalent to those under the successive third-degree price discrimination. Moreover, cooperative strategies between the manufacturer and the retailer can eliminate double marginalization, achieve the vertical integration effect, and lead to higher profits, consumer surpluses, and social surpluses than non-cooperative coupon strategies. Copyright © 2004 John Wiley & Sons, Ltd. [source] The extent, motivation, and effect of tying in franchise contractsMANAGERIAL AND DECISION ECONOMICS, Issue 5 2000Steven C Michael Tying in franchise contracts has been the subject of considerable antitrust litigation and theoretical analysis. Tying can enhance efficiency by increasing standardization and reducing monitoring costs, or it can be used with market power for price discrimination. In this paper, I report on the extent of tying among restaurant franchisors and test whether it is motivated by efficiency or market power considerations. The results show that the use of tying is not affected by market share or outlet share in various industry sectors, but it is affected by equipment required and by business strategy. The results are weakly supportive of efficiency and not supportive of market power. Copyright © 2000 John Wiley & Sons, Ltd. [source] Dynamic pricing in internet retail: Effects on consumer trustPSYCHOLOGY & MARKETING, Issue 6 2003Ellen Garbarino Individual-level price discrimination, while not a new idea, is more than a theoretical possibility in the Internet age. Economic theory argues that dynamic pricing (i.e., individual-level price discrimination) is inherently good for the profitability of the firm, because it allows the firm to capture a larger share of the consumer surplus, but anecdotal evidence from recent retail experiments with Internet-based dynamic pricing suggests that consumers react strongly against this practice. Using a two-dimensional conceptualization of trust, based on benevolence and competence trust, the current experiment examines how the experience of a dynamic pricing event and the direction of the pricing discrimination (i.e., whether one is offered the higher or the lower price) affects both the mean levels of trust and the weight given to the separate trust dimensions in the formation of overall trust. Because demand-based pricing, such as dynamic pricing, is generally considered unfair, it is expected that trust levels will be lower and that more weight will be given to benevolence trust. Results show that mean benevolence trust is significantly lower (which leads to a marginal decrease in overall trust) and the weight given to benevolence trust in the formation of overall trust substantially increases. The direction-of-price-discrimination effects are generally unsupported. © 2003 Wiley Periodicals, Inc. [source] Copyright, Parallel Imports and National Welfare: The Australian Market for Sound RecordingsTHE AUSTRALIAN ECONOMIC REVIEW, Issue 4 2000Theo Papadopoulos For more than a decade now there has been considerable, often heated, debate over the issue of the parallel importation of sound recordings into Australia. Citing anti-competitive monopolistic distribution, an increasingly integrated global market and the challenges of new technologies, the Australian government recently passed the Copyright Amendment Act (No.2) 1998, which permits the parallel importation of ,non-infringing' copies of a sound recording. This paper investigates the economic rationale underpinning this regulatory change and, using a partial equilibrium model, attempts to measure the likely welfare effects on consumers, copyright owners and the nation. In addition the paper examines the likely welfare impact of piracy within the new regulatory framework. This paper demonstrates that in a global music market characterised by exclusive territorial licences and price discrimination, the removal of parallel import restrictions by a small net-importer of intellectual property may be welfare enhancing for the nation. This welfare gain is at the expense of largely foreign copyright owners. [source] PRICE-SETTING BEHAVIOR IN TURKISH INDUSTRIES: EVIDENCE FROM SURVEY DATATHE DEVELOPING ECONOMIES, Issue 4 2008E30; D40 This study investigates the price-setting behavior of Turkish industries based on the results of a survey that was conducted by the Central Bank of the Republic of Turkey. The results show that, under normal conditions, the majority of the firms follow a time-dependent pricing rule but when significant events occur a substantial fraction of them alter their behavior to state-dependent reviewing. The median Turkish firm reviews its prices every month, but changes its prices four times a year. Price reviews and changes are affected by: the market share, price discrimination, customer type, firm size, and the existence of regulated prices. [source] INFORMATION EXCHANGE AND COMPETITION IN COMMUNICATIONS NETWORKS,THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 4 2008CARLO CAMBINI Interconnection; Access charges; Reception charges; Information exchange We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off-net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also study the relationship between sending and receiving retail charges as a function of the level of access charges. We identify circumstances where private negotiations over access charges induce first-best retail prices. [source] DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS,THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 4 2008YONGMIN CHEN 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. [source] Why Do Suppliers Charge Larger Buyers Lower Prices?THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 1 2001Rajeev K. Tyagi The phenomenon of input suppliers charging larger buyer firms, relative to smaller buyer firms, lower prices is commonly explained in terms of supplier economies of scale, supplier competition for larger buyers, and the larger bargaining power of larger buyers. This paper provides an alternative explanation, and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers can sustain in their output market. This result also provides a new mechanism through which a ban on price discrimination by input suppliers may lower consumer welfare. [source] Product Patent, the Problem of Availability of Patented Drugs and Parallel Trade: A Theoretical ApproachTHE JOURNAL OF WORLD INTELLECTUAL PROPERTY, Issue 4 2010Mainak Mazumdar This article theoretically examines the potential effect of product patent on the availability of an essential drug in developing countries like India. Previous studies have indicated the possibility of a product patent making a drug unavailable in a developing nation. This has been shown under the uniform pricing policy adopted by the multinational company (MNC) that produces the drug. Allowing for price discrimination and comparing it with the above situation, we have argued that the problem of non-availability of a patented drug is, indeed, much less serious. However, successful price discrimination is not possible when markets are not perfectly segmented and "parallel trade" (a form of arbitrage) by the distributors exists. Our model incorporates such a possibility and establishes that even in the presence of parallel trade, the MNC can earn higher profits by supplying the drug to both the developed and the developing nations than by confining itself to the markets of developed countries. [source] PROFIT MAXIMIZATION AND SOCIAL OPTIMUM WITH NETWORK EXTERNALITY,THE MANCHESTER SCHOOL, Issue 2 2006URIEL SPIEGEL The paper analyzes the options open to monopoly firms that sell Internet services. We consider two groups of customers that are different in their reservation prices. The monopoly uses price discrimination between customers by producing two versions of the product at positive price for high-quality product and a free version at zero price for lower-quality product. The monopoly can sell advertising space to increase its revenue but risks losing customers who are annoyed by advertising. Network externalities increase the incentive to increase output; thus we find cases where the profit maximization is consistent with maximum social welfare. [source] WHOLESALE PRICING WHEN BUYERS ARE ASYMMETRIC COURNOT COMPETITORS,THE MANCHESTER SCHOOL, Issue 2 2006GIUSEPPE COLANGELO This paper focuses on the pricing policy of a well-informed profit- maximizing producer selling to asymmetric retailers who compete à la Cournot. An optimal upstream two-part tariff implies the exit of the inefficient retailer, thus causing downstream monopolization. When this would bring about a significant increase in the efficient retailer's bargaining power, as is plausible, the producer will try to avoid this and consequently choose a pricing scheme that does not cause downstream monopolization. When this is the case, two alternatives emerge: a two-part tariff (ensuring no downstream monopolization) or third-degree price discrimination. The more asymmetric in cost retailers are (consistent with no downstream monopolization), the more likely it is to see third-degree price discrimination as the equilibrium wholesale pricing. When third-degree price discrimination is implemented, a welfare loss is easily produced. [source] Market power, price discrimination, and allocative efficiency in intermediate-goods marketsTHE RAND JOURNAL OF ECONOMICS, Issue 4 2009Roman Inderst We consider a monopolistic supplier's optimal choice of two-part tariff contracts when downstream firms are asymmetric. We find that the optimal discriminatory contracts amplify differences in downstream firms' competitiveness. Firms that are larger,either because they are more efficient or because they sell a superior product,obtain a lower wholesale price than their rivals. This increases allocative efficiency by favoring the more productive firms. In contrast, we show that a ban on price discrimination reduces allocative efficiency and can lead to higher wholesale prices for,all,firms. As a result, consumer surplus, industry profits, and welfare are lower. [source] An empirical investigation of the welfare effects of banning wholesale price discriminationTHE RAND JOURNAL OF ECONOMICS, Issue 1 2009Sofia 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. [source] THE DETERMINANTS OF THE QUANTITY-QUALITY BALANCE IN MONOPOLY,AUSTRALIAN ECONOMIC PAPERS, Issue 1 2009HUGH SIBLY This paper describes how a monopolist manipulates the balance of quantity and quality in order to increase revenue when its customers treat quantity and quality as substitutes. This ,skewing' of quality depends on the characteristics of customer's demand for quality. Customers differ in demand for quality, because they differ in either (i) their preferences and/or (ii) their time cost per unit. The monopolist is constrained to supply the same quality of good to all customers. The price and quality per unit are described under the assumption the monopolist (i) profit maximises; (ii) maximises social welfare subject to a profit constraint. The determinants of the skewing of quantity and quality are found under third-degree price discrimination and uniform pricing. [source] Pricing to Market Behavior by Canadian and U.S. Agri-food Exporters: Evidence from Wheat, Pulse and ApplesCANADIAN JOURNAL OF AGRICULTURAL ECONOMICS, Issue 2 2003Richard Carew A fixed-effects model to control for time variation in marginal costs is employed to pinpoint evidence of price discriminatory behavior of Canadian and U.S. exporters of agri-food products. We test for evidence of pricing to market behavior and whether price discrimination or commodity/country characteristics may provide a plausible explanation. A distinguishing feature of our approach is to examine the time-series properties of the data by the conventional augmented Dickey-Fuller and recently developed panel unit root test. The panel data set employed in this paper consists of annual exchange rates and export prices for three agri-food products (wheat, pulse and apples) exported by Canada and the U.S. in foreign markets during 1980,98. Our fixed-effects model suggests that U.S. exporters are sensitive to exchange rate changes, while Canadian exporters in most cases raised price markups in response to a depreciated currency in overseas markets. The results highlight the differences in pricing policy that both countries employ to merchandise agri-food products in export markets. Les auteurs ont recouru à un modèle à effets fixes pour contrôler la fluctuation des coûts marginaux dans le temps et montrer que les exportateurs canadiens et américains de produits agroalimentaires se comportent différemment dans l'établissement des prix. Ils ont tenté de vérifier si ce comportement varie avec les cours en vigueur sur le marché et essayé d'établir s'il s'explique par une discrimination au niveau des prix ou par les paramètres propres au produit ou au pays. Une particularité de cette approche est qu'elle tient compte des propriétés historiques des données en recourant à la version augmentée du test classique de Dickey Fuller et au tout nouveau test de racine unitaire reposant sur les panels. Le jeu de données recueillies par panel dont les auteurs se sont servis comprend le taux du change annuel et le prix d'exportation de trois produits agroalimentaires (blé, légumineuses à graine et pommes) que le Canada et les États-Unis ont écoulés sur les marchés étrangers entre 1980 et 1998. Le modèle à effets fixes laisse croire que les exportateurs américains sont sensibles au taux du change alors que, dans la plupart des cas, leurs homologues canadiens majorent les prix davantage consécutivement à une dépréciation des devises à l'étranger. Les résultats font ressortir les divergences entre les politiques de fixation des prix qu'emploient les deux pays pour écouler leurs produits agroalimentaires sur les marchés étrangers. 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