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Search and Wholesale Price Discrimination

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  • Guillermo Marshall

Abstract

Firms often choose not to post prices in wholesale markets, and buyers must incur costs to discover prices. Inspired by evidence of customized pricing (e.g., some customers pay up to 70% more than others) and search costs, I estimate a search model to study how personalized pricing impacts efficiency in a wholesale market. I find that price discrimination decreases total surplus by 11.6% and increases the sellers' profits by up to 52.1%. These effects are partially explained by price discrimination softening competition through a decrease in search incentives, illustrating how price discrimination may magnify the efficiency costs of search frictions.

Suggested Citation

  • Guillermo Marshall, 2020. "Search and Wholesale Price Discrimination," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 346-374, June.
    • Handle: RePEc:bla:randje:v:51:y:2020:i:2:p:346-374
    DOI: 10.1111/1756-2171.12317
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    References listed on IDEAS

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    Cited by:

    1. Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    2. Groh, Carl-Christian, 2023. "Search, Data, and Market Power," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277701, Verein für Socialpolitik / German Economic Association.
    3. Tian, Geran & Wu, Weixing, 2023. "Big data pricing in marketplace lending and price discrimination against repeat borrowers: Evidence from China," China Economic Review, Elsevier, vol. 78(C).
    4. Jason Allen & Robert Clark & Jean-François Houde, 2019. "Search Frictions and Market Power in Negotiated-Price Markets," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1550-1598.
    5. Smith, Howard & Beckert, Walter & Takahashi, Yuya, 2020. "Competition in a spatially-differentiated product market with negotiated prices," CEPR Discussion Papers 15379, C.E.P.R. Discussion Papers.
    6. Fernando Luco & Guillermo Marshall, 2021. "Diagnosing Anticompetitive Effects of Vertical Integration by Multiproduct Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 381-392, September.
    7. Jason Allen & Shaoteng Li, 2020. "Dynamic Competition in Negotiated Price Markets," Staff Working Papers 20-22, Bank of Canada.

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