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Hassle Costs and Price Discrimination: An Empirical Welfare Analysis

Author

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  • Guillermo Marshall

Abstract

This paper studies a market where soda is sold in both refillable and nonrefillable bottles. Purchasing refillables is inconvenient but cheaper. Using a discrete choice model, I find that price-sensitive customers put less weight on the inconveniences of purchasing refillables. This implies that a retailer can target lower prices to price-sensitive customers using the refillable segment. I evaluate the overall welfare consequences of this market segmentation and find that both customer welfare and profits would decrease (by 12.61 and 4.21 percent, respectively) if the refillables were removed, as there would be an important market-shrinkage effect. (JEL D22, L13, L25, L81)

Suggested Citation

  • Guillermo Marshall, 2015. "Hassle Costs and Price Discrimination: An Empirical Welfare Analysis," American Economic Journal: Applied Economics, American Economic Association, vol. 7(3), pages 123-146, July.
    • Handle: RePEc:aea:aejapp:v:7:y:2015:i:3:p:123-46
    Note: DOI: 10.1257/app.20130046
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    Citations

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    Cited by:

    1. McCalman, Phillip, 2018. "International trade, income distribution and welfare," Journal of International Economics, Elsevier, vol. 110(C), pages 1-15.
    2. Guillermo Marshall, 2020. "Search and Wholesale Price Discrimination," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 346-374, June.
    3. Marshall, Guillermo & Parra, Álvaro, 2019. "Innovation and competition: The role of the product market," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 221-247.
    4. Jason Allen & Robert Clark & Shaoteng Li & Nicolas Vincent, 2022. "Debt‐relief programs and money left on the table: Evidence from Canada's response to COVID‐19," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 9-53, February.
    5. Xing Zhang & Tat Y. Chan & Ying Xie, 2018. "Price Search and Periodic Price Discounts," Management Science, INFORMS, vol. 64(2), pages 495-510, February.

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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