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Price Discrimination with Costly Consumer Arbitrage

Author

Listed:
  • 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)

Abstract

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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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-1994.html
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    More about this item

    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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