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Price discrimination and investment incentives

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  • Alexandrov, Alexei
  • Deb, Joyee

Abstract

We examine a model of a monopolist selling to two segments of consumers with different preferences for quality. We show that if the firm is unable to price discriminate between the segments, then there is less investment in quality. We find that both consumer segments, and society overall, may suffer if the firm is unable to price discriminate. We extend the model to duopoly competition, and find that our results still hold.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 6 ()
Pages: 615-623

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Handle: RePEc:eee:indorg:v:30:y:2012:i:6:p:615-623

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: price discrimination; investment; parallel trade; pharmaceuticals; net neutrality;

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References

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  1. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," Working Papers 08-03, NET Institute.
  2. Hornbeck, Richard A., 2005. "Price Discrimination and Smuggling of AIDS Drugs," Scholarly Articles 11186012, Harvard University Department of Economics.
  3. I�aki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-15, September.
  4. Roman Inderst & Greg Shaffer, 2009. "Market power, price discrimination, and allocative efficiency in intermediate-goods markets," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 658-672.
  5. Hornbeck Richard A., 2005. "Price Discrimination and Smuggling of AIDS Drugs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-27, September.
  6. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19.
  7. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-53, December.
  8. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-47, March.
  9. Alexei Alexandrov, 2006. "Fat Products," Discussion Papers 1435, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Hausman, J.A. & Mackie-Mason, J.K., 1988. "Price Discrimination And Patent Policy," Papers 88-13, Michigan - Center for Research on Economic & Social Theory.
  11. Layson, Stephen K, 1994. "Market Opening under Third-Degree Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 335-40, September.
  12. Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, vol. 90(1), pages 240-246, March.
  13. Deneckere, R. & McAfee, R.P., 1995. "Damaged Goods," Working papers 9508, Wisconsin Madison - Social Systems.
  14. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
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Cited by:
  1. Giorgio Matteucci & Pierfrancesco Reverberi, 2013. "Parallel trade, product quality, and welfare," DIAG Technical Reports 2013-14, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  2. Matteucci, Giorgio & Reverberi, Pierfrancesco, 2014. "Parallel trade, product quality, and welfare," Economics Letters, Elsevier, vol. 122(2), pages 258-262.
  3. Tselekounis, Markos & Xylogianni, Eirini & Varoutas, Dimitris & Martakos, Drakoulis, 2013. "Geographically differentiated NGA deployment," 24th European Regional ITS Conference, Florence 2013 88533, International Telecommunications Society (ITS).

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