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Price discrimination with costly consumer arbitrage

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  • Simon P. Anderson
  • Victor Ginsburgh

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 ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/1699.

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Date of creation: 1999
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Publication status: Published in: Review of International Economics (1999) v.7,p.126-139
Handle: RePEc:ulb:ulbeco:2013/1699

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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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