History-based price discrimination and entry in markets with switching costs: A welfare analysis
AbstractWe analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers' purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 55 (2011)
Issue (Month): 5 (June)
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Web page: http://www.elsevier.com/locate/eer
History-based pricing Price discrimination Entry Switching costs Abuse of market dominance Exclusionary abuse Exploitative abuse Ban on price discrimination;
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