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A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market

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  • Kathryn Graddy
  • George Hall

Abstract

We estimate a dynamic profit-maximization model of a fish wholesaler who can observe consumer characteristics, set individual prices, and thus engage in third-degree price discrimination. Simulated prices and quantities from the model exhibit the key features observed in a set of high quality transaction-level data on fish sales collected at the Fulton fish market. The model's predictions are then compared to the case in which the dealer must post a single price to all customers. We find the cost to the dealer of posting a uniform price to be extremely small.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15019.

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Date of creation: May 2009
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Publication status: published as Graddy, Kathryn & Hall, George, 2011. "A dynamic model of price discrimination and inventory management at the Fulton Fish Market," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 6-19.
Handle: RePEc:nbr:nberwo:15019

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  1. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc.
  2. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
  3. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-21, June.
  4. Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
  5. Kathryn Graddy, 1995. "Testing for Imperfect Competition at the Fulton Fish Market," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 75-92, Spring.
  6. John Rust & Hui Man Chan & George Hall, 2004. "Price Discrimination in the Steel Market," 2004 Meeting Papers 44, Society for Economic Dynamics.
  7. Villas-Boas, Sofia B, 2008. "An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7vg17026, Department of Agricultural & Resource Economics, UC Berkeley.
  8. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  9. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  10. Wedad Elmaghraby & P{\i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
  11. Sokbae Lee, 2004. "Endogeneity in Quantile Regression Models: A Control Function Approach," Econometric Society 2004 North American Summer Meetings 521, Econometric Society.
  12. Kathryn Graddy, 2006. "Markets: The Fulton Fish Market," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 207-220, Spring.
  13. Andrew Sweeting, 2008. "Equilibrium Price Dynamics in Perishable Goods Markets: The Case of Secondary Markets for Major League Baseball Tickets," NBER Working Papers 14505, National Bureau of Economic Research, Inc.
  14. Adam Copeland & Wendy Dunn & George Hall, 2011. "Inventories and the automobile market," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 121-149, 03.
  15. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
  16. Kathryn Graddy & Peter Kennedy, 2010. "When Are Supply And Demand Determined Recursively Rather Than Simultaneously?," Eastern Economic Journal, Palgrave Macmillan, vol. 36(2), pages 188-197, Spring.
  17. Angrist, Joshua D & Graddy, Kathryn & Imbens, Guido W, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 499-527, July.
  18. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
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Cited by:
  1. Benjamin Reed Shiller, 2013. "First Degree Price Discrimination Using Big Data," Working Papers 58, Brandeis University, Department of Economics and International Businesss School, revised Sep 2013.

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