Abstract

http://ssrn.com/abstract=1027575
 
 

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Market Dominance and Behavior-Based Pricing Under Horizontal and Vertical Differentiation


Thomas Gehrig


University of Vienna - Faculty of Business, Economics, and Statistics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Vienna Graduate School of Finance (VGSF)

Oz Shy


Federal Reserve Banks - Federal Reserve Bank of Boston

Rune Stenbacka


Hanken School of Economics

November 2, 2007


Abstract:     
We evaluate behavior-based price discrimination from an antitrust perspective by focusing on an industry with inherited market dominance. Under horizontal differentiation behavior-based pricing does not by itself lead to persistence of dominance unless the dominant firm is protected by significantly higher switching costs than its small rival. This result continues to hold even if the dominant firm can use behavior-based pricing to compete against an entrant with no access to consumers' purchase histories. Under vertical differentiation behavior-based pricing enhances the dominance of the high-quality seller and, hence, consumer welfare.

Number of Pages in PDF File: 27

Keywords: market dominance, behavior-based pricing, consumer loyalty, poaching, price discrimination, horizontal and vertical differentiation

JEL Classification: D4, L1, L41

working papers series


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Date posted: November 8, 2007  

Suggested Citation

Gehrig, Thomas and Shy, Oz and Stenbacka, Rune, Market Dominance and Behavior-Based Pricing Under Horizontal and Vertical Differentiation (November 2, 2007). Available at SSRN: http://ssrn.com/abstract=1027575 or http://dx.doi.org/10.2139/ssrn.1027575

Contact Information

Thomas Gehrig (Contact Author)
University of Vienna - Faculty of Business, Economics, and Statistics ( email )
Vienna, A-1210
Austria
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Vienna Graduate School of Finance (VGSF) ( email )
Nordbergstraße 15
Vienna, 1090
Austria
Oz Shy
Federal Reserve Banks - Federal Reserve Bank of Boston ( email )
600 Atlantic Avenue
Research Department
Boston, MA 02210
United States
HOME PAGE: http://www.ozshy.com
Rune Stenbacka
Hanken School of Economics ( email )
P.O. Box 479
FI-00101 Helsinki
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)
Feedback to SSRN


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