Competition and Price Discrimination in the Market for Mailing Lists

Abstract

This paper examines the relationship between competition and price discrimination in the market for mailing lists. More specifically, we examine whether sellers are more likely to segregate consumers by offering a menu of quality choices (second-degree price discrimination) and/or offering different prices to readily identifiable groups of consumers (third-degree price discrimination) in more competitive markets. We also examine how the fineness with which consumers are divided corresponds to the level of competition in the market.

The dataset includes information about all consumer response lists derived from mail order buyers (i.e. lists derived from catalogs) available for rental in 1997 and 2002. Using industry classifications, we create measures of competition for each list. We then use these measures to predict whether given lists utilize discriminatory pricing strategies.

Our results indicate that lists facing more competition are more likely to implement second-degree and third-degree price discrimination, and when implementing second-degree price discrimination, to offer menus with more choices.

Keywords: Price discrimination, information goods

JEL Classification: L1, M2