Market Segmentation and Collusive Behavior

30 Pages Posted: 28 Feb 2006

See all articles by Qihong Liu

Qihong Liu

University of Oklahoma - Department of Economics

Konstantinos Serfes

Drexel University

Date Written: May 15, 2006


The recent literature on oligopolistic third-degree price discrimination has been primarily concerned with rival firms' incentives to acquire customer-specific information and the consequences of such information on firm profitability and welfare. This literature has taken mostly a static view of the interaction between competing firms. In contrast, in this paper, we investigate the impact of customer-specific information on the likelihood of tacit collusion in a dynamic game of repeated interaction. This issue is very important because competitive price discrimination usually leads to a cutthroat price competition (prisoners' dilemma) among firms. Firms, therefore, may seek ways to soften competition and sustain higher prices. Our main result is that collusion becomes more difficult as the firms' ability to segment consumers improves.

Keywords: Market segmentation, Tacit collusion, Third-degree price

JEL Classification: D43, L11, L43

Suggested Citation

Liu, Qihong and Serfes, Konstantinos, Market Segmentation and Collusive Behavior (May 15, 2006). Available at SSRN: or

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

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


Konstantinos Serfes

Drexel University ( email )

3220 Market Street
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics