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An empirical analysis of competitive nonlinear pricing

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  • Aryal, Gaurab
  • Gabrielli, Maria F.

Abstract

We estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses (e.g., doctors, electricians) from two Yellow Page Directories in one U.S. city-market. Variation in individual choices and payments allows us to identify the joint density of preferences, marginal costs of publishing and common utility parameters. Our estimates suggest substantial welfare loss due to asymmetric information. Comparing duopoly outcomes with (counterfactual) monopoly outcomes, we find that with less competition (i) producer surplus increases substantially; (ii) more “low-type” consumers are excluded; (iii) product variety increases, but benefits accrue only to the “high-type” consumers; (iv) total consumer surplus decreases; (v) but its distribution, across consumers, does not change.

Suggested Citation

  • Aryal, Gaurab & Gabrielli, Maria F., 2020. "An empirical analysis of competitive nonlinear pricing," International Journal of Industrial Organization, Elsevier, vol. 68(C).
  • Handle: RePEc:eee:indorg:v:68:y:2020:i:c:s0167718719300669
    DOI: 10.1016/j.ijindorg.2019.102538
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    Cited by:

    1. Ambarish Chandra, 2020. "Price Discrimination along Multiple Dimensions: New Evidence from a Regional Airline," Working Papers tecipa-676, University of Toronto, Department of Economics.
    2. Gaurab Aryal & Charles Murry & Jonathan W. Williams, 2018. "Price Discrimination in International Airline Markets," Boston College Working Papers in Economics 968, Boston College Department of Economics.
    3. Gaurab Aryal, 2014. "Identifying Multidiemsnional Adverse Selection Models," Papers 1411.6250, arXiv.org, revised Nov 2015.

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    More about this item

    Keywords

    Asymmetric information; Competitive nonlinear pricing; Multidimensional heterogeneity;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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