Price Discrimination in Free-Entry Markets
AbstractUsing a spatial model of monopolistic competition, we investigate price discrimination in free-entry, zero-profit markets. We show that when brands are heterogeneous, competition does not prevent discrimination. The power to earn economic profits is not necessary for a firm to maintain discriminatory prices. Our model treats formally the fact that consumers differ not only in the utility they derive from a good, but also in how strongly they prefer one brand over all others. In markets where firms are very competitive, sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers' reservation prices for the good. When firms sort customers on the basis of strength of brand preference, however, we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers' reservation prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 16 (1985)
Issue (Month): 3 (Autumn)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.