Price Discrimination and Market Power

18 Pages Posted: 23 Sep 2004

See all articles by Shane Carbonneau

Shane Carbonneau

University of Texas at Austin - Department of Economics

R. Preston McAfee

Yahoo! - Yahoo! Research Labs

Hugo M. Mialon

Emory University - Department of Economics

Sue H. Mialon

Emory University

Date Written: June 7, 2004

Abstract

If there is price discrimination, at least one of the prices is not equal to marginal cost. Therefore, if there is price discrimination, there must be market power. While this logic is sound, it has led many policy-makers to believe that price discrimination and market power are positively correlated. We present a model where measured price discrimination can be low while market power is high, and price discrimination can be high while market power is low, thus demonstrating that there is no theoretical connection between the strength of price discrimination and that of market power. We then present strong evidence that price discrimination is negatively correlated with market power in the US airlines industry.

Suggested Citation

Carbonneau, Shane and McAfee, Randolph Preston and Mialon, Hugo M. and Mialon, Sue H., Price Discrimination and Market Power (June 7, 2004). Available at SSRN: https://ssrn.com/abstract=594442 or http://dx.doi.org/10.2139/ssrn.594442

Shane Carbonneau (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Randolph Preston McAfee

Yahoo! - Yahoo! Research Labs ( email )

Sunnyvale, CA 94089
United States

Hugo M. Mialon

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Sue H. Mialon

Emory University ( email )

Department of Economics
1602 Fishburne Dr.
Atlanta, GA 30322
United States
404-712-8169 (Phone)

HOME PAGE: http://www.suemialon.net

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