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

  • Kathryn Graddy
  • George Hall

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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File URL: http://www.nber.org/papers/w15019.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15019.

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Date of creation: May 2009
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Publication status: published as Graddy, Kathryn & Hall, George, 2011. "A dynamic model of price discrimination and inventory management at the Fulton Fish Market," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 6-19.
Handle: RePEc:nbr:nberwo:15019
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  1. Graddy, K., 1993. "Testing for Imperfect Competition at the Fulton Fish Market," Papers 137, Princeton, Department of Economics - Financial Research Center.
  2. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
  3. Sokbae Lee, 2004. "Endogeneity in Quantile Regression Models: A Control Function Approach," Econometric Society 2004 North American Summer Meetings 521, Econometric Society.
  4. 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 728-41, September.
  5. Kathryn Graddy, 2006. "Markets: The Fulton Fish Market," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 207-220, Spring.
  6. 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.
  7. 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.
  8. 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.
  9. Angrist, Joshua D & Graddy, Kathryn & Imbens, Guido W, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 499-527, July.
  10. 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 304-21, June.
  11. John Rust & George Hall, 2002. "Middlemen versus Market Makers: A Theory of Competitive Exchange," NBER Working Papers 8883, National Bureau of Economic Research, Inc.
  12. 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.
  13. John Rust & Hui Man Chan & George Hall, 2004. "Price Discrimination in the Steel Market," Econometric Society 2004 North American Summer Meetings 245, Econometric Society.
  14. 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.
  15. 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 S63-84, Suppl. De.
  16. Kathryn Graddy & Peter Kennedy, 2010. "When Are Supply And Demand Determined Recursively Rather Than Simultaneously?," Eastern Economic Journal, Palgrave Macmillan, vol. 36(2), pages 188-197, Spring.
  17. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
  18. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, vol. 2(1), pages 61-68, October.
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