Product line and price discrimination:a theory perspective and a view from the markets

The paper is focused on nonlinear pricing, price discrimination and their implementation in actual markets. The introductory section uses simple examples to describe the basic notions and types of price discrimination. Section 2 reviews the main theories behind nonlinear pricing and summarizes the existing results with a focus on consumer choice for those consumers who are keen on quality. It allows the authors in Section 3 to move further to analyze the issues of «prestige» and conspicuous consumption, especially in the case when the sellers exercise their market power over buyers through brands and reputation. Section 4 shows how theoretical results are actually implemented in the automobile market. In particular, the paper shows that cars originating from countries with an established reputation as automobile manufacturers (UK, Germany, Sweden) get the highest markup in the market compared to the basic case. Moreover, the analysis of practical methods used in the Russian car market confirms that car dealers manage to sell automobiles as close to consumer reserve prices as possible, employing all types of price discrimination.