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Market Dominance and Behaviour-Based Pricing under Horizontal and Vertical Differentiation

Author

Listed:
  • Gehrig, Thomas
  • Shy, Oz
  • Stenbacka, Rune

Abstract

We evaluate behaviour-based price discrimination from an antitrust perspective by focusing on an industry with inherited market dominance. Under horizontal differentiation behaviour-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behaviour-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behaviour-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare.

Suggested Citation

  • Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2007. "Market Dominance and Behaviour-Based Pricing under Horizontal and Vertical Differentiation," CEPR Discussion Papers 6571, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6571
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    Citations

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    Cited by:

    1. Elias Carroni, 2015. "Behaviour Based Price Discrimination with Cross-Group Externalities," Working Papers 1502, University of Namur, Department of Economics.
    2. Elias Carroni, 2015. "Competitive Behaviour-Based Price: Discrimination among Asymmetric Firms," Working Papers 1501, University of Namur, Department of Economics.

    More about this item

    Keywords

    behavior-based pricing; consumer loyalty; horizontal and vertical differentiation; market dominance; poaching; price discrimination;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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