When is Price Discrimination Profitable?

27 Pages Posted: 2 Jan 2009

See all articles by Eric Anderson

Eric Anderson

Northwestern University - Department of Marketing

James D. Dana

Northeastern University - Department of Economics; Northeastern University - Department of International Business and Strategy

Date Written: October 29, 2008

Abstract

We consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable. We show that an important condition for profitable price discrimination is that the percentage change in surplus (i.e., consumers' total willingness to pay less the firm's costs) associated with a product upgrade is increasing in consumers' willingness to pay. We refer to this as an increasing percentage differences condition and relate it to many known results in the marketing, economics, and operations management literatures.

Suggested Citation

Anderson, Eric and Dana, James D., When is Price Discrimination Profitable? (October 29, 2008). Northeastern U. College of Business Administration Research Paper No. 08-003. Available at SSRN: https://ssrn.com/abstract=1322528 or http://dx.doi.org/10.2139/ssrn.1322528

Eric Anderson (Contact Author)

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

James D. Dana

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States
617-373-7517 (Phone)

HOME PAGE: http://www.economics.neu.edu/dana/

Northeastern University - Department of International Business and Strategy

360 Huntington Ave
Boston, MA 02115
United States

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