Measuring Market Power When Firms Price Discriminate

Abstract

We propose conduct parameter based market power measures within a model of price discrimination, extending work by Hazledine (2006) and Kutlu (2012) to certain forms of second degree price discrimination. We use our model to estimate the market power of U.S. airlines in a price discrimination environment. We find that a slightly modified version of our original theoretical measure is positively related with market concentration. Moreover, on average, market power for high-end segment is greater than that of low-end segment.

Keywords: Price Discrimination, Market Power, Conduct Parameter

JEL Classification: C57, L13, L40, L93