IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

Price Discrimination and Competition

  • Stole, Lars A.

This chapter surveys the developments in price discrimination theory as it applies to imperfectly competitive markets. Broad themes and conclusions are discussed in the areas of first-, second- and third-degree price discrimination, pricing under demand uncertainty, bundling and behavior-based discrimination.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B7P5S-4PKFGN7-D/2/73861a39e7e40c81a438362b4cc0cb3f
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

as
in new window

This chapter was published in:
  • Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1, 00.
  • This item is provided by Elsevier in its series Handbook of Industrial Organization with number 3-34.
    Handle: RePEc:eee:indchp:3-34
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Nilssen, T., 1990. "Two Kinds of Consumer Switching Costs," Papers 12-90, Norwegian School of Economics and Business Administration-.
    2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    3. Bester, Helmut & Petrakis, Emmanuel, 1996. "Coupons and oligopolistic price discrimination," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 227-242.
    4. Miravete, Eugenio J & Röller, Lars-Hendrik, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
    5. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
    6. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
    7. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-57, May.
    8. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
    9. Biais, Bruno & Martimort, David & Rochet, Jean-Charles, 1998. "Competing Mechanisms in a Commun Value Environment," IDEI Working Papers 75, Institut d'Économie Industrielle (IDEI), Toulouse.
    10. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    11. Giacomo Calzolari, 2004. "Incentive Regulation of Multinational Enterprises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 257-282, 02.
    12. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-55, September.
    13. Raymond Deneckere & James Peck, 1992. "Competition over Price and Service Rate when Demand is Stochastic: A Strategic Analysis," Discussion Papers 990, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-53, December.
    15. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
    16. D. W. Carlton, 1976. "Market Behavior With Demand Uncertainty and Price Inflexibility," Working papers 179, Massachusetts Institute of Technology (MIT), Department of Economics.
    17. Miravete, Eugenio J, 1996. "Screening Consumers through Alternative Pricing Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(2), pages 111-32, March.
    18. De Fraja, Giovanni, 1996. "Product line competition in vertically differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 389-414, May.
    19. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
    20. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    21. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
    22. Bond, Eric W. & Gresik, Thomas A., 1996. "Regulation of multinational firms with two active governments: A common agency approach," Journal of Public Economics, Elsevier, vol. 59(1), pages 33-53, January.
    23. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
    24. Peter E. Rossi & Robert E. McCulloch & Greg M. Allenby, 1996. "The Value of Purchase History Data in Target Marketing," Marketing Science, INFORMS, vol. 15(4), pages 321-340.
    25. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    26. Clerides, Sofronis K., 2002. "Book value: intertemporal pricing and quality discrimination in the US market for books," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1385-1408, December.
    27. Yongmin Chen, 1999. "Oligopoly Price Discrimination and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 441-455, Autumn.
    28. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
    29. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    30. David Besanko & Jean-Pierre Dubé & Sachin Gupta, 2003. "Competitive Price Discrimination Strategies in a Vertical Channel Using Aggregate Retail Data," Management Science, INFORMS, vol. 49(9), pages 1121-1138, September.
    31. Goldberg, Pinelopi & Verboven, Frank, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," CEPR Discussion Papers 2926, C.E.P.R. Discussion Papers.
    32. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 277-311, January.
    33. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
    34. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, March.
    35. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
    36. Yannis Bakos & Erik Brynjolfsson, 1997. "Bundling Information Goods: Pricing, Profits and Efficiency," Working Paper Series 199, MIT Center for Coordination Science.
    37. Taylor, Curtis R., 2000. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," Working Papers 00-12, Duke University, Department of Economics.
    38. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    39. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-40, May.
    40. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
    41. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
    42. Norman, George, 1981. "Spatial Competition and Spatial Price Discrimination," Review of Economic Studies, Wiley Blackwell, vol. 48(1), pages 97-111, January.
    43. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
    44. Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, 03.
    45. Alessandro Acquisti & Hal R. Varian, 2005. "Conditioning Prices on Purchase History," Marketing Science, INFORMS, vol. 24(3), pages 367-381, May.
    46. Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
    47. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 80(5), pages 1254-58, December.
    48. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
    49. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    50. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
    51. Meghan R. Busse & Marc Rysman, 2001. "Competition and Price Discrimination in Yellow Pages Advertising," Yale School of Management Working Papers ysm207, Yale School of Management.
    52. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages S211-30, January.
    53. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
    54. THISSE, Jacques-François & VIVES, Xavier, . "On the strategic choice of spatial price policy," CORE Discussion Papers RP -793, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    55. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
    56. Christos Cabolis & Sofronis Clerides & Ioannis Ioannou & Daniel Senft, 2005. "A Textbook Example of International Price Discrimination," Yale School of Management Working Papers amz2640, Yale School of Management, revised 01 Aug 2008.
    57. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-62, December.
    58. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    59. Jean-Jacques Laffont & Jean Tirole, 1991. "Privatization and Incentives," Working papers 572, Massachusetts Institute of Technology (MIT), Department of Economics.
    60. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
    61. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
    62. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
    63. Armstrong, Mark & Rochet, Jean-Charles, 1999. "Multi-dimensional screening:: A user's guide," European Economic Review, Elsevier, vol. 43(4-6), pages 959-979, April.
    64. Sofronis K. Clerides, 2004. "Price Discrimination with Differentiated Products: Definition and Identification," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 402-412, July.
    65. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
    66. Aguirre, Inaki & Espinosa, Maria Paz & Macho-Stadler, Ines, 1998. "Strategic entry deterrence through spatial price discrimination," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 297-314, May.
    67. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
    68. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    69. Gilbert, Richard J & Matutes, Carmen, 1993. "Product Line Rivalry with Brand Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 223-40, September.
    70. Greg Shaffer & Z. John Zhang, 1995. "Competitive Coupon Targeting," Marketing Science, INFORMS, vol. 14(4), pages 395-416.
    71. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    72. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December.
    73. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    74. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
    75. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    76. Francisco Galera & Jesús M. Zaratiegui, 2003. "Welfare and Output in Third-Degree Price Discrimination: a Note," Faculty Working Papers 07/03, School of Economics and Business Administration, University of Navarra.
    77. Biglaiser Gary & Mezzetti Claudio, 1993. "Principals Competing for an Agent in the Presence of Adverse Selection and Moral Hazard," Journal of Economic Theory, Elsevier, vol. 61(2), pages 302-330, December.
    78. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    79. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    80. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
    81. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
    82. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
    83. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    84. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
    85. J. Miguel Villas-Boas & Udo Schmidt-Mohr, 1999. "Oligopoly with Asymmetric Information: Differentiation in Credit Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 375-396, Autumn.
    86. Faruk Gul, 1987. "Noncooperative Collusion in Durable Goods Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 248-254, Summer.
    87. Qihong Liu & Konstantinos Serfes, 2002. "Quality of Information and Oligopolistic Price Discrimination," Industrial Organization 0203004, EconWPA, revised 06 Mar 2002.
    88. Ivaldi, Marc & Martimort, David, 1993. "Competition under Nonlinear Pricing," IDEI Working Papers 29, Institut d'Économie Industrielle (IDEI), Toulouse.
    89. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
    90. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
    91. Claudio Mezzetti, 1997. "Common Agency with Horizontally Differentiated Principals," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 323-345, Summer.
    92. David Martimort & Lars Stole, 2009. "Market participation in delegated and intrinsic common-agency games," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 78-102.
    93. Calem, Paul S. & Spulber, Daniel F., 1984. "Multiproduct two part tariffs," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 105-115, June.
    94. Aviv Nevo & Catherine Wolfram, 2002. "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 319-339, Summer.
    95. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
    96. Greg Shaffer & Z. John Zhang, 2000. "Pay to Switch or Pay to Stay: Preference-Based Price Discrimination in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 397-424, 06.
    97. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    98. Dana, James D, Jr, 2001. "Monopoly Price Dispersion under Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 649-70, August.
    99. B. Douglas Bernheim & Michael D. Whinston, 1985. "Common Marketing Agency as a Device for Facilitating Collusion," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 269-281, Summer.
    100. Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
    101. Spulber, Daniel F, 1984. "Competition and Multiplant Monopoly with Spatial Nonlinear Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 425-39, June.
    102. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    103. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
    104. Lott, John R, Jr & Roberts, Russell D, 1991. "A Guide to the Pitfalls of Identifying Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 14-23, January.
    105. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    106. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
    107. Anderson, Simon P. & Leruth, Luc, 1993. "Why firms may prefer not to price discriminate via mixed bundling," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 49-61, March.
    108. Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
    109. Spulber, Daniel F., 1989. "Product variety and competitive discounts," Journal of Economic Theory, Elsevier, vol. 48(2), pages 510-525, August.
    110. Oren, Shmuel S. & Smith, Stephen A. & Wilson, Robert B., 1983. "Competitive nonlinear tariffs," Journal of Economic Theory, Elsevier, vol. 29(1), pages 49-71, February.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:indchp:3-34. 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: (Zhang, Lei)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.