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Discriminating against Captive Customers

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  • Mark Armstrong
  • John Vickers

Abstract

We analyze a market where some consumers only consider buying from a specific seller while other consumers choose the best deal from several sellers. When sellers are able to discriminate against their captive customers, we show that discrimination harms consumers in aggregate relative to the situation with uniform pricing when sellers are approximately symmetric, while the practice tends to benefit consumers in sufficiently asymmetric markets. We also show how the asymmetry of markets may be affected by the information that firms have on consumer captivity.

Suggested Citation

  • Mark Armstrong & John Vickers, 2019. "Discriminating against Captive Customers," American Economic Review: Insights, American Economic Association, vol. 1(3), pages 257-272, December.
  • Handle: RePEc:aea:aerins:v:1:y:2019:i:3:p:257-72
    Note: DOI: 10.1257/aeri.20180581
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Boot, Arnoud & Hoffmann, Peter & Laeven, Luc & Ratnovski, Lev, 2021. "Fintech: what’s old, what’s new?," Journal of Financial Stability, Elsevier, vol. 53(C).
    2. Boot, Arnoud W A & Hoffmann, Peter & Laeven, Luc & Ratnovski, Lev, 2020. "Financial Intermediation and Technology: What's Old, What's New?," CEPR Discussion Papers 15004, C.E.P.R. Discussion Papers.
    3. Armstrong, Mark & Vickers, John, 2019. "Patterns of Competitive Interaction," CEPR Discussion Papers 13821, C.E.P.R. Discussion Papers.
    4. Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    5. Armstrong, Mark & Vickers, John, 2018. "Patterns of Competition with Captive Customers," MPRA Paper 90362, University Library of Munich, Germany.
    6. Armstrong, Mark & Zhou, Jidong, 2019. "Consumer information and the limits to competition," CEPR Discussion Papers 14162, C.E.P.R. Discussion Papers.
    7. Armstrong, Mark & Vickers, John, 2020. "Patterns of Price Competition and the Structure of Consumer Choice," MPRA Paper 98346, University Library of Munich, Germany.
    8. Zhou, Jidong, 2019. "Mixed Bundling in Oligopoly Markets," MPRA Paper 97432, University Library of Munich, Germany.
    9. Abdul Latif, Nurul Atikah, 2019. "The Impact of Liquidity Risk on Internal and External Factors," MPRA Paper 97222, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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