Identifying price discrimination when product menus are endogenous
AbstractThe standard approach to identifying second degree price discrimination is based on examining correlations between product menus and prices. When product menus are endogenous, however, tests for price discrimination may be biased by the fact that unobservables affecting costs or demand may jointly determine product menus and prices leading one to falsely infer price discrimination. Attempts to correct for this potential bias using observed product characteristics or fixed effects are shown to potentially confound inference on price discrimination leading one to reject it when firms are actually price discriminating. I propose a difference in differences type test that exploits the potential correlation between unobserved product attributes, product menus, and prices.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2004-10.
Date of creation: 2004
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-04-04 (All new papers)
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- Christos Cabolis & Sofronis Clerides & Ioannis Ioannou & Daniel Senft, 2005.
"A Textbook Example of International Price Discrimination,"
Yale School of Management Working Papers
amz2640, Yale School of Management, revised 01 Aug 2008.
- Cabolis, Christos & Clerides, Sofronis & Ioannou, Ioannis & Senft, Daniel, 2007. "A textbook example of international price discrimination," Economics Letters, Elsevier, vol. 95(1), pages 91-95, April.
- Christos Cabolis & Sofronis Clerides & Ioannis Ioannou & Daniel Senft, 2005. "A Textbook Example of International Price Discrimination," University of Cyprus Working Papers in Economics 3-2005, University of Cyprus Department of Economics.
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