Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare

18 Pages Posted: 4 Sep 2014

See all articles by Hinnerk Gnutzmann

Hinnerk Gnutzmann

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management

Date Written: June 26, 2014

Abstract

Price discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare effects -- even though prices and industry profits fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric firms yielded sharply different results, the pro-competitive effect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare.

Keywords: History-based price discrimination, asymmetric price discrimination, switching cost

JEL Classification: L13, L41

Suggested Citation

Gnutzmann, Hinnerk, Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare (June 26, 2014). Available at SSRN: https://ssrn.com/abstract=2490822 or http://dx.doi.org/10.2139/ssrn.2490822

Hinnerk Gnutzmann (Contact Author)

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

HOME PAGE: http://www.gnutzmann.info

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