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First degree discrimination in a competitive setting: pricing and quality choice

Author

Listed:
  • David Encaoua

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Abraham Hollander

    (UdeM - Université de Montréal)

Abstract

The paper investigates competition in price schedules among vertically differentiated producers. First order price discrimination leading to personalized prices are the perfect equilibrium of the two-stage game where firms choose at the first stage to commit or not to a uniform price and compete at the second stage. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms and on the disparity of consumer preferences. Finally, firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective.

Suggested Citation

  • David Encaoua & Abraham Hollander, 2004. "First degree discrimination in a competitive setting: pricing and quality choice," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00193447, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00193447
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00193447
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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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