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Price Discrimination with Costly Consumer Arbitrage


  • ANDERSON, Simon P.

    (University of Virginia, Charlottesville, VA)

  • GINSBURGH , Victor A.

    (Université Libre de Bruxelles, Bruxelles and CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)


Consumer arbitrage affects discriminatory pricing across markets in several ways. If all consumers face the same arbitrage costs, a monopolist's profit increases with arbitrage costs, and overall welfare declines with them (if output does not rise). If arbitrage costs differ across consumers, a monopolist may sell in a second market even if there is no local demand - it can use the second market to discriminate across consumers in the first market on the basis of their costs. When there is also local demand in the second market, welfare may be increasing in arbitrage costs, even if output falls.

Suggested Citation

  • ANDERSON, Simon P. & GINSBURGH , Victor A., 1994. "Price Discrimination with Costly Consumer Arbitrage," CORE Discussion Papers 1994039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:1994039

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    References listed on IDEAS

    1. Mas-Colell, Andreu, 1991. "Indeterminacy in Incomplete Market Economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 1(1), pages 45-61, January.
    2. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
    3. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-392, May.
    4. DUTTA, J. & POLEMARCHAKIS, Heracles, 1995. "Time to build and equilibrium contracts," CORE Discussion Papers 1995082, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Balasko, Yves & Cass, David & Siconolfi, Paolo, 1990. "The structure of financial equilibrium with exogenous yields : The case of restricted participation," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 195-216.
    6. Polemarchakis, H. M., 1988. "Portfolio choice, exchange rates, and indeterminacy," Journal of Economic Theory, Elsevier, vol. 46(2), pages 414-421, December.
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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation


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