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When Price Discrimination Fails - A Principal Agent Problem with Social Influence

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  • Vlad Radoias

    (Department of Economics, Towson University)

Abstract

I develop a theoretical model of price discrimination under social influence. I find that social influence gives sellers the incentive to artificially create and maintain excess demand on the market. The rationing occurs mainly at the low end of the market, and sometimes results in full rationing of the low end. Furthermore, the incidence of price discrimination under social influence is much lower than in the absence of it. Social influence lowers the profitability of price discrimination and incentivizes sellers to reduce product variety and to only target the high end of the market, a fact that is consistent with many empirical observations.

Suggested Citation

  • Vlad Radoias, 2014. "When Price Discrimination Fails - A Principal Agent Problem with Social Influence," Working Papers 2014-08, Towson University, Department of Economics, revised Oct 2014.
    • Handle: RePEc:tow:wpaper:2014-08
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    References listed on IDEAS

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    More about this item

    Keywords

    Price Discrimination; Social Influence; Excess Demand.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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