Price discrimination in service industries

This article outlines recent methods and applications directed at understanding the profit and consumer welfare implications of increasingly prevalent price discrimination strategies in the service sector. These industries are typically characterized by heterogeneity in consumers’ valuation and usage of the service, resale constraints, and a focus on price as the service’s key attribute. The article focuses on how firms use nonlinear pricing or bundling strategies to benefit from the Mark Lett (2012) 23:423–438 DOI 10.1007/s11002-012-9187-0 This paper draws on discussions from the conference session at the Eighth Triennial Choice Symposium at Key Largo, FL, USA co-chaired by the first three authors. A. Lambrecht (*) :N. Vilcassim London Business School, London, UK e-mail: [email protected] K. Seim :K. Hosanagar : R. Iyengar Wharton School, University of Pennsylvania, Philadelphia, PA, USA A. Cheema University of Virginia, Charlottesville, VA, USA Y. Chen Northwestern University, Evanston, IL, USA G. S. Crawford University of Warwick, Coventry, UK O. Koenigsberg London Business School, London, UK R. Lee Stern School of Business, New York University, New York, NY, USA E. J. Miravete University of Texas at Austin & CEPR, Austin, TX, USA O. Sahin Carey Business School, Johns Hopkins University, Baltimore, MD, USA heterogeneity in consumer demand. We describe the basic economic model commonly used in the literature to analyze such strategic choices and present recent methodological improvements to this benchmark. A discussion of existing applications and future research opportunities concludes the article.