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Market segregation in the presence of customer discrimination

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  • Amegashie, J．Atsu

Abstract

I consider a market with two firms, a minority group of customers, and a bigoted (racist, ethnocentric, xenophobic, or sexist) majority group of customers. There exists a Nash equilibrium with full segregation in which a low-price firm serves only the minority and a high-price firm serves only the majority. There is also a partial-integration equilibrium in which a high-price firm serves only the majority while a low-price firm serves both the minority and majority. Paradoxically, if the minority group is sufficiently big and the majority is sufficiently prejudiced, then both equilibria hold in the sense that the high-price firm does not lose customers, although its competitor charges a lower price. If the firms can price discriminate, none of these equilibria will hold. The partial integration equilibrium depends on how the prejudice of the majority is modelled.

Suggested Citation

  • Amegashie, J．Atsu, 2023. "Market segregation in the presence of customer discrimination," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 105(C).
    • Handle: RePEc:eee:soceco:v:105:y:2023:i:c:s2214804323000708
    DOI: 10.1016/j.socec.2023.102044
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    References listed on IDEAS

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    More about this item

    Keywords

    Customer discrimination; Majority; Markets; Minority; Segregation;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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