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How (Not) to Price Discriminate

25 Pages Posted: 13 Jan 2012  

Qihong Liu

University of Oklahoma - Department of Economics

Jie Shuai

Zhongnan University of Economics and Law

Date Written: January 12, 2012

Abstract

We investigate the welfare impacts of price discrimination using a two-dimensional product differentiation model with best-response asymmetry. Among our findings: (i) Price discrimination has a reduced demand elasticity effect in two-dimensional models but not in one-dimensional models. (ii) Price discrimination on one and the same dimension can raise profits and uniform price lies in between the discriminatory prices. These results are similar to those in one-dimensional models of price discrimination but with best-response symmetry. (iii) Price discrimination on one but different dimensions and price discrimination on both dimensions are likely to lower profits, mimicking the standard results in one-dimensional models with best-response asymmetry. Overall our results suggest that regulators need to be more cautious with the practice of oligopolistic price discrimination under best-response asymmetry.

Keywords: Price discrimination, Best-response asymmetry, Multi-dimensional product differentiation

JEL Classification: D43, L13, L40

Suggested Citation

Liu, Qihong and Shuai, Jie, How (Not) to Price Discriminate (January 12, 2012). Available at SSRN: https://ssrn.com/abstract=1984000 or http://dx.doi.org/10.2139/ssrn.1984000

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)

HOME PAGE: http://qliu.oucreate.com

Jie Shuai

Zhongnan University of Economics and Law ( email )

182 Nanhu Ave.
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

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