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Intertemporal Price Discrimination in Storable Goods Markets

  • Igal Hendel
  • Aviv Nevo

We study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we offer a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales: (1) capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and (2) increase total welfare.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16988.

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Date of creation: Apr 2011
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Publication status: published as “Intertemporal Price Discrimination in Storable Goods Markets”, American Economic Review 103(7), December 2013, 2722-51 (joint with Igal Hendel).
Handle: RePEc:nbr:nberwo:16988
Note: EFG IO ME PR
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  8. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
  9. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
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  12. Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
  13. Tülin Erdem & Susumu Imai & Michael Keane, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 5-64, March.
  14. Jeuland, Abel P & Narasimhan, Chakravarthi, 1985. "Dealing-Temporary Price Cuts-by Seller as a Buyer Discrimination Mechanism," The Journal of Business, University of Chicago Press, vol. 58(3), pages 295-308, July.
  15. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  16. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
  17. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
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