Download this Paper Open PDF in Browser

Market Segmentation and Collusive Behavior

30 Pages Posted: 28 Feb 2006  

Qihong Liu

University of Oklahoma - Department of Economics

Konstantinos Serfes

Drexel University - School of Economics

Date Written: May 15, 2006

Abstract

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: https://ssrn.com/abstract=886088 or http://dx.doi.org/10.2139/ssrn.886088

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

Konstantinos Serfes

Drexel University - School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

Paper statistics

Downloads
207
Rank
124,132
Abstract Views
1,747