Market Segmentation with Nonlinear Pricing

25 Pages Posted: 28 Mar 2011

See all articles by Silvia Sonderegger

Silvia Sonderegger

University of Bristol - Department of Economics

Date Written: March 2011

Abstract

We study the benefits and drawbacks of allowing firms to offer different price-quality menus to captive consumers and to consumers more exposed to competition (market segmentation). We show that the effect of market segmentation depends on the relationship between the range of consumer preferences found in captive and competitive markets. When the range of consumer preferences in captive markets is wide, segmentation is quality and (aggregate) welfare reducing, while the opposite holds when the range of consumer preferences in captive markets is narrow. Segmentation always harms captive consumers, while it always benefits consumers located in competitive markets.

Suggested Citation

Sonderegger, Silvia, Market Segmentation with Nonlinear Pricing (March 2011). The Journal of Industrial Economics, Vol. 59, Issue 1, pp. 38-62, 2011, Available at SSRN: https://ssrn.com/abstract=1794834 or http://dx.doi.org/10.1111/j.1467-6451.2011.00445.x

Silvia Sonderegger (Contact Author)

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

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