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Fighting Bundles: The Effects of Competition on Second-Degree Price Discrimination

Author

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  • Andre Boik
  • Hidenori Takahashi

Abstract

We study how changes in market structure affect how firms engage in second-degree price discrimination. Specifically, we study how a large incumbent cable firm changes its menu of price-quality offerings and mixed bundles in response to entry. Competition strongly decreases the rate at which prices increase in quality and induces the incumbent to introduce additional medium- to high-quality offerings that the incumbent could have introduced absent competition but chose not to. Our findings are relevant for the broadband industry because they suggest that competition can improve broadband quality through direct pricing effects without any changes in investment in maximum quality.

Suggested Citation

  • Andre Boik & Hidenori Takahashi, 2020. "Fighting Bundles: The Effects of Competition on Second-Degree Price Discrimination," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 156-187, February.
    • Handle: RePEc:aea:aejmic:v:12:y:2020:i:1:p:156-87
    DOI: 10.1257/mic.20180303
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    Cited by:

    1. Lewis, Matthew S., 2021. "Identifying airline price discrimination and the effect of competition," International Journal of Industrial Organization, Elsevier, vol. 78(C).

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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