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A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market

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Listed author(s):
  • Graddy, Kathryn
  • Hall, George

Abstract

We estimate a dynamic profit-maximization model of a fish wholesaler who can observe consumer characteristics, set individual prices, and thus engage in third-degree price discrimination. Simulated prices and quantities from the model exhibit the key features observed in a set of high quality transaction-level data on fish sales collected at the Fulton fish market. The model’s predictions are then compared to the case in which the dealer must post a single price to all customers. We find the cost to the dealer of posting a uniform price to be extremely small.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7315.

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Date of creation: Jun 2009
Handle: RePEc:cpr:ceprdp:7315
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Keywords: dynamic programming; fish; indirect inference; price discrimination; yield management;

Other versions of this item:

Find related papers by JEL classification:
  • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
  • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
  • D4 - Microeconomics - - Market Structure, Pricing, and Design
  • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
  • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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  1. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 63-84, Suppl. De.
  2. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
  3. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-321, June.
  4. John Rust & George Hall, 2003. "Middlemen versus Market Makers: A Theory of Competitive Exchange," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 353-403, April.
  5. Kathryn Graddy, 1995. "Testing for Imperfect Competition at the Fulton Fish Market," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 75-92, Spring.
  6. Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 275-308.
  7. Andrew Sweeting, 2008. "Equilibrium Price Dynamics in Perishable Goods Markets: The Case of Secondary Markets for Major League Baseball Tickets," NBER Working Papers 14505, National Bureau of Economic Research, Inc.
  8. Kathryn Graddy, 2006. "Markets: The Fulton Fish Market," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 207-220, Spring.
  9. Lee, Sokbae, 2007. "Endogeneity in quantile regression models: A control function approach," Journal of Econometrics, Elsevier, vol. 141(2), pages 1131-1158, December.
  10. Sofia Berto Villas-Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46.
  11. Joshua D. Angrist & Kathryn Graddy & Guido W. Imbens, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 499-527.
  12. John Rust & Hui Man Chan & George Hall, 2004. "Price Discrimination in the Steel Market," Econometric Society 2004 North American Summer Meetings 245, Econometric Society.
  13. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
  14. Kathryn Graddy & Peter Kennedy, 2010. "When Are Supply And Demand Determined Recursively Rather Than Simultaneously?," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 36(2), pages 188-197, Spring.
  15. Adam Copeland & Wendy Dunn & George Hall, 2011. "Inventories and the automobile market," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 121-149, 03.
  16. Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
  17. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
  18. Wedad Elmaghraby & P{\i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, vol. 49(10), pages 1287-1309, October.
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Cited by:

  1. Benjamin Reed Shiller, 2013. "First Degree Price Discrimination Using Big Data," Working Papers 58, Brandeis University, Department of Economics and International Businesss School, revised Sep 2013.

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