IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v55y2011i5p732-739.html
   My bibliography  Save this article

History-based price discrimination and entry in markets with switching costs: A welfare analysis

Author

Listed:
  • Gehrig, Thomas
  • Shy, Oz
  • Stenbacka, Rune

Abstract

We analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers' purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.

Suggested Citation

  • Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
  • Handle: RePEc:eee:eecrev:v:55:y:2011:i:5:p:732-739
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S001429211000084X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jan Bouckaert & Hans Degryse & Theon Van Dijk, 2008. "Price Discrimination Bans on Dominant Firms," CESifo Working Paper Series 2192, CESifo Group Munich.
    2. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-359, December.
    3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
    4. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    5. Taylor, Curtis R, 2003. " Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 223-246, Summer.
    6. Liliane Karlinger & Massimo Motta, 2007. "Exclusionary Pricing and Rebates When Scale Matters," Economics Working Papers ECO2007/30, European University Institute.
    7. Yongmin Chen, 2008. "DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 729-751, December.
    8. Sílvia Jorge & Cesaltina Pires, 2007. "Entry Decision and Pricing Policies," Working Papers de Economia (Economics Working Papers) 41, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    9. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    10. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
    11. Cheung, Francis K. & Wang, X. Henry, 1999. "A note on the effect of price discrimination on entry: Research note," Journal of Economics and Business, Elsevier, vol. 51(1), pages 67-72, January.
    12. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
    13. Thomas Gehrig & Rune Stenbacka, 2004. "Differentiation-Induced Switching Costs and Poaching," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 635-655, December.
    14. Innes, Robert & Sexton, Richard J, 1994. "Strategic Buyers and Exclusionary Contracts," American Economic Review, American Economic Association, vol. 84(3), pages 566-584, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hinnerk Gnutzmann, 2014. "Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare," DISCE - Working Papers del Dipartimento di Economia e Finanza def019, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Haan, Marten & Siekman, Wilhelm, 2015. "Winning back the unfaithful while exploiting the loyal," Research Report 15011-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    3. Rosa Branca Esteves & Joana Resende, 2011. "Competitive Targeted Advertising with Price Discrimination," NIPE Working Papers 08/2011, NIPE - Universidade do Minho.
    4. Esteves, Rosa-Branca, 2014. "Behavior-based price discrimination with retention offers," Information Economics and Policy, Elsevier, vol. 27(C), pages 39-51.
    5. Oz Shy & Rune Stenbacka, 2011. "Customer recognition and competition," Working Papers 11-7, Federal Reserve Bank of Boston.
    6. repec:ctc:serie1:def19 is not listed on IDEAS
    7. De Nijs, Romain, 2013. "Information provision and behaviour-based price discrimination," Information Economics and Policy, Elsevier, vol. 25(1), pages 32-40.
    8. Rosa-Branca Esteves, 2014. "Price Discrimination with Private and Imperfect Information," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(3), pages 766-796, July.
    9. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," Working Papers halshs-00622291, HAL.
    10. Thomas Gehrig & Oz Shy & Rune Stenbacka, 2012. "A Welfare Evaluation of History-Based Price Discrimination," Journal of Industry, Competition and Trade, Springer, vol. 12(4), pages 373-393, December.
    11. Jan Bouckaert & Hans Degryse & Theon Dijk, 2013. "Bertrand Competition with an Asymmetric No-discrimination Constraint," Journal of Industrial Economics, Wiley Blackwell, vol. 61(1), pages 62-83, March.
    12. Rosa Branca Esteves, 2013. "Customer Poaching with Retention Strategies," NIPE Working Papers 02/2013, NIPE - Universidade do Minho.
    13. Bernard Caillaud & Romain De Nijs, 2011. "Strategic loyalty reward in dynamic price Discrimination," PSE Working Papers halshs-00622291, HAL.
    14. Carroni, Elias, 2016. "Competitive customer poaching with asymmetric firms," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 173-206.
    15. Shy, Oz & Stenbacka, Rune, 2013. "Investment in customer recognition and information exchange," Information Economics and Policy, Elsevier, vol. 25(2), pages 92-106.
    16. Elias Carroni, 2015. "Competitive Behaviour-Based Price: Discrimination among Asymmetric Firms," Working Papers 1501, University of Namur, Department of Economics.
    17. repec:nip:nipewp:09/2014 is not listed on IDEAS
    18. Shy, Oz & Stenbacka, Rune & Zhang, David Hao, 2016. "History-based versus uniform pricing in growing and declining markets," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 88-117.
    19. repec:bla:manchs:v:85:y:2017:i:4:p:491-510 is not listed on IDEAS

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:55:y:2011:i:5:p:732-739. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eer .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.