Price Discrimination and Competition
Lars A. Stole University of Chicago, GSB
First Draft: June 2000 Current version: May 2006
Acknowledgments: I am grateful to Jim Dana, Wouter Dessein, J-P. Dube, Glenn Ellison, David Genesove, Joyce van Grondelle, David Martimort, Canice Prendergast, Markus Reisinger, Jean-Charles Rochet, Klaus Schmidt, Dan Spulber, Achim Wambach, Michael Whinston, and seminar participants at the Center for Economic Studies, Ludwig-MaximiliansUniversit¨t, Munich, Germany for helpful comments. I am especially ina debted to Mark Armstrong and Audris Wong for their many helpful comments and insights. Financial support received from the National Science Foundation, the University of Chicago, GSB, and from the CES.
Abstract: This chapter surveys the developments in price discrimination theory as it applies to imperfectly competitive markets. Broad
themes and conclusions are discussed in the areas of first-, second- and thirddegree price discrimination, pricing under demand uncertainty, bundling, and behavior-based discrimination.
JEL classifications: D400, L100, L400, L500
JEL key words: price discrimination, oligopoly, imperfect competition, market segmentation, demand uncertainty, bundling
Contents
1 Introduction 1
2 First-degree price discrimination
10
3 Third-degree price discrimination 3.1 3.2 3.3 Welfare analysis . . . . . . . . . . . . . . . . . . . . . . . . . . Cournot models of third-degree price discrimination . . . . . A tale of two elasticities: best-response symmetry in price games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 When one firm’s strength is a rival’s weakness: best-response asymmetry in price games . . . . . . . . . . . . . . . . . . . . 3.5 3.6 Price discrimination and entry . . . . . . . . . . . . . . . . . Collective agreements to limit price discrimination . . . . . .
15 15 19
22
33 43 49
4 Price Discrimination by Purchase History 4.1 4.2 4.3 Exogenous... [continues]
Lars A. Stole University of Chicago, GSB
First Draft: June 2000 Current version: May 2006
Acknowledgments: I am grateful to Jim Dana, Wouter Dessein, J-P. Dube, Glenn Ellison, David Genesove, Joyce van Grondelle, David Martimort, Canice Prendergast, Markus Reisinger, Jean-Charles Rochet, Klaus Schmidt, Dan Spulber, Achim Wambach, Michael Whinston, and seminar participants at the Center for Economic Studies, Ludwig-MaximiliansUniversit¨t, Munich, Germany for helpful comments. I am especially ina debted to Mark Armstrong and Audris Wong for their many helpful comments and insights. Financial support received from the National Science Foundation, the University of Chicago, GSB, and from the CES.
Abstract: This chapter surveys the developments in price discrimination theory as it applies to imperfectly competitive markets. Broad
themes and conclusions are discussed in the areas of first-, second- and thirddegree price discrimination, pricing under demand uncertainty, bundling, and behavior-based discrimination.
JEL classifications: D400, L100, L400, L500
JEL key words: price discrimination, oligopoly, imperfect competition, market segmentation, demand uncertainty, bundling
Contents
1 Introduction 1
2 First-degree price discrimination
10
3 Third-degree price discrimination 3.1 3.2 3.3 Welfare analysis . . . . . . . . . . . . . . . . . . . . . . . . . . Cournot models of third-degree price discrimination . . . . . A tale of two elasticities: best-response symmetry in price games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 When one firm’s strength is a rival’s weakness: best-response asymmetry in price games . . . . . . . . . . . . . . . . . . . . 3.5 3.6 Price discrimination and entry . . . . . . . . . . . . . . . . . Collective agreements to limit price discrimination . . . . . .
15 15 19
22
33 43 49
4 Price Discrimination by Purchase History 4.1 4.2 4.3 Exogenous... [continues]
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