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Estimating Markups under Nonlinear Pricing Competition

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Author Info

  • Eugenio J. Miravete
  • Lars-Hendrik Röller

Abstract

This paper provides a structural interpretation to the estimates of the shape and position of nonlinear tariffs. We focus on the evaluation of price-cost margins, and thus we need to identify marginal cost from an equilibrium model of nonlinear pricing competition. We estimate these price-cost margins using quarterly data from the early U.S. cellular telephone industry between 1984 and 1988. Our results indicate that the margins are increased under duopoly, due to a significant reduction in marginal costs. Moreover, we find that the price-cost margins vary over the consumption levels and that low end users are subject to higher price-cost margins than high-end users. The impact of competition further increases the margins in the low-end user segment, relative to high endusers. In that sense the benefits of competition, which are largely due to increased efficiencies, are passed on relatively more to high-end users. We also show that these findings are robust even if one includes a number of observable market demand and cost variables. ZUSAMMENFASSUNG - (Schätzung von Preisaufschlägen im nicht-linearen Preissetzungswettbewerb) Dieses Papier bietet eine strukturelle Interpretation der Schätzungen der Form und Position nichtlinearer Tarife. Dabei konzentrieren wir uns auf die Bewertung von Preisaufschlägen und müssen daher zunächst die Grenzkosten in einem Gleichgewichtsmodell nicht-linearen Preiswettbewerbs identifizieren. Wir schätzen diese Preisaufschläge, indem wir Quartalsdaten der jungen Mobilfunkindustrie der U.S.A. zwischen 1984 und 1988 verwenden. Die Ergebnisse deuten darauf hin, dass die Aufschläge in einem Duopol aufgrund signifikanter Grenzkostenreduktion größer sind. Außerdem lässt sich feststellen, dass die Preisaufschläge über die Konsumniveaus variieren und dass Nutzer im Niedrigsegment ('low-end') höhere Preisaufschläge zu tragen haben als 'highend'- Nutzer. Der Einfluß des Wettbewerbs vergrößert noch die Preisaufschläge im 'low-end'-Bereich im Vergleich zum 'high-end'. In diesem Sinne profitieren die 'high-end'-Nutzer mehr vom Wettbewerb, der sich vor allem in gesteigerten Effizienzen positiv niederschlägt. Diese Ergebnisse sind robust, wie gezeigt werden kann, sogar wenn eine Reihe beobachtbarer Marktnachfrage- und Kostenvariablen hinzugefügt wird.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2003-21.

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Length: 13 pages
Date of creation: Dec 2003
Date of revision:
Publication status: Published under the title "Estimating Price-Cost Markups under Nonlinear Pricing Competition" in Journal of the European Economic Association , Vol. 2(2-3), 2004, pp. 526-535.
Handle: RePEc:wzb:wzebiv:spii2003-21

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Related research

Keywords: Estimation of Equilibrium Oligopoly Models; Competitive Nonlinear Pricing; Common Agency;

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References

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  1. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  3. Miravete, Eugenio J & Röller, Lars-Hendrik, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Grajek, Michal & Kretschmer, Tobias, 2009. "Usage and diffusion of cellular telephony, 1998-2004," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 238-249, March.
  2. Pascal Courty & Mario Pagliero, 2009. "The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry," Economics Working Papers ECO2009/04, European University Institute.
  3. Xavier d'Haultfoeuille & Philippe Février, 2011. "The Provision of Wage Incentives : A Structural Estimation Using Contracts Variation," Working Papers 2011-29, Centre de Recherche en Economie et Statistique.
  4. Jean-Pierre Dubé & K. Sudhir & Andrew Ching & Gregory Crawford & Michaela Draganska & Jeremy Fox & Wesley Hartmann & Günter Hitsch & V. Viard & Miguel Villas-Boas & Naufel Vilcassim, 2005. "Recent Advances in Structural Econometric Modeling: Dynamics, Product Positioning and Entry," Marketing Letters, Springer, vol. 16(3), pages 209-224, December.
  5. Khaled Diaw & Jérôme Pouyet, 2005. "Information, competition and (In) complete discrimination," Working Papers hal-00243025, HAL.
  6. Xavier d'Haultfoeuille & Philippe Février, 2010. "Identification of a Class of Adverse Selection Models with Contracts Variation," Working Papers 2011-27, Centre de Recherche en Economie et Statistique.

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