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A Welfare Evaluation of History-Based Price Discrimination

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Listed:
  • Thomas Gehrig
  • Oz Shy
  • Rune Stenbacka

Abstract

We design an asymmetric duopoly model with inherited market dominance such that the dominant firm and the smaller firm can price discriminate based on consumers’ purchase history. We show that uniform pricing softens competition leading to higher industry profits than under history-based pricing. Consumers benefit from history-based price discrimination unless the switching cost is sufficiently high and the inherited degree of dominance is sufficiently weak. A ban on history-based pricing would typically introduce a distributional conflict between consumers and producers. Finally, we establish that the gains to industry profits associated with uniform pricing exceed the associated losses to consumers. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
  • Handle: RePEc:kap:jincot:v:12:y:2012:i:4:p:373-393
    DOI: 10.1007/s10842-011-0111-8
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    References listed on IDEAS

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    More about this item

    Keywords

    market dominance; history-based pricing; consumer loyalty; poaching; price discrimination; horizontal differentiation; D4; L1; L41;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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