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Market Dominance and Behaviour-Based Pricing under Horizontal and Vertical Differentiation

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Author Info
Gehrig, Thomas
Shy, Oz
Stenbacka, Rune

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Abstract

We evaluate behaviour-based price discrimination from an antitrust perspective by focusing on an industry with inherited market dominance. Under horizontal differentiation behaviour-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behaviour-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behaviour-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6571.

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Date of creation: Nov 2007
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Handle: RePEc:cpr:ceprdp:6571

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Related research
Keywords: behavior-based pricing; consumer loyalty; horizontal and vertical differentiation; market dominance; poaching; price discrimination;

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
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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