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A model of search with price discrimination

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  • Fabra, Natalia
  • Reguant, Mar

Abstract

We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.

Suggested Citation

  • Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120302014
    DOI: 10.1016/j.euroecorev.2020.103571
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    Cited by:

    1. Daniel F. Garrett & Renato Gomes & Lucas Maestri, 2022. "Oligopoly under incomplete information: on the welfare effects of price discrimination," Working Papers hal-03629517, HAL.
    2. Marcel Preuss, 2023. "Search, learning, and tracking," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 54-82, March.
    3. Aldasoro, Iñaki & Balke, Florian & Barth, Andreas & Eren, Egemen, 2022. "Spillovers of funding dry-ups," Journal of International Economics, Elsevier, vol. 137(C).
    4. Garrett, Daniel & Gomes, Renato & Maestri, Lucas, 2021. "Oligopoly under incomplete information: On the welfare effects of price discrimination," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    5. David P. Myatt, 2019. "A Theory of Stable Price Dispersion," Economics Series Working Papers 873, University of Oxford, Department of Economics.
    6. Natalia Fabra & Juan-Pablo Montero, 2022. "Product Lines and Price Discrimination in Markets with Information Frictions," Management Science, INFORMS, vol. 68(2), pages 981-1001, February.
    7. Nolan Ritter & Julia Anna Bingler, 2021. "Do homo sapiens know their prices? Insights on dysfunctional price mechanisms from a large field experiment," CER-ETH Economics working paper series 21/348, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Janssen, Maarten & Reshidi, Edona, 2022. "Regulating recommended retail prices," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    9. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2023. "Pricing policies for efficient demand side management in liberalized electricity markets," Economic Modelling, Elsevier, vol. 121(C).
    10. David Ronayne, 2020. "The Only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition," Economics Series Working Papers 874, University of Oxford, Department of Economics.
    11. Johannes Johnen & David Ronayne, 2021. "The only Dance in Town: Unique Equilibrium in a Generalized Model of Price Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 595-614, September.
    12. Mauring, Eeva, 2022. "Search and Price Discrimination Online," CEPR Discussion Papers 15729, C.E.P.R. Discussion Papers.
    13. 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.
    14. José L Moraga-González & Zsolt Sándor & Matthijs R Wildenbeest, 2021. "Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence," The Economic Journal, Royal Economic Society, vol. 131(635), pages 1308-1330.
    15. Vickers, John, 2021. "Competition for imperfect consumers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    16. Byrne, David P. & Martin, Leslie A., 2021. "Consumer search and income inequality," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    17. David Ronayne & Greg Taylor, 2022. "Competing Sales Channels with Captive Consumers," The Economic Journal, Royal Economic Society, vol. 132(642), pages 741-766.
    18. Daniel F. Garrett & Renato Gomes & Lucas Maestri, 2021. "Oligopoly under incomplete information: on the welfare effects of price discrimination," Post-Print hal-03515749, HAL.

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    More about this item

    Keywords

    Third-degree price discrimination; Search; Bid solicitation; Competition;
    All these keywords.

    JEL classification:

    • 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

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