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Price Discrimination with Costly Consumer Arbitrage

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  • ANDERSON, Simon P.

    (University of Virginia, Charlottesville, VA)

  • GINSBURGH , Victor A.

    (Université Libre de Bruxelles, Bruxelles and CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

Abstract

Consumer arbitrage affects discriminatory pricing across markets in several ways. If all consumers face the same arbitrage costs, a monopolist's profit increases with arbitrage costs, and overall welfare declines with them (if output does not rise). If arbitrage costs differ across consumers, a monopolist may sell in a second market even if there is no local demand - it can use the second market to discriminate across consumers in the first market on the basis of their costs. When there is also local demand in the second market, welfare may be increasing in arbitrage costs, even if output falls.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1994039.

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Date of creation: 01 Aug 1994
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Handle: RePEc:cor:louvco:1994039

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Cited by:
  1. Hamilton, Jonathan H., 2012. "The effect of Canadian imports on prescription drug prices in the U.S," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1003-1008.

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