In many instances of price discrimination, a seller of an item is in possession of signals from competing buyers regarding their private valuation for the item. While intuition may suggest that a seller should always exploit all available information, our paper shows that it is actually in the interests of the seller to strategically ignore the information contained in the signals with positive...

This paper sets out a new research design to test for price discrimination by sellers in the housing market. The design controls carefully for unobserved differences in the quality of neighborhoods and homes purchased by buyers of each race, using novel panel data from over two million repeat-sales housing transactions in four metropolitan areas. The results indicate that black and Hispanic hom...

VARIAN [1985] AND SCHWARTZ [1990] PROVED THAT, very generally, monopolistic third-degree price discrimination decreases aggregate welfare if total output falls (a conjecture which dates back to the work of A. C. Pigou, [1920]). In particular, these authors adopted a representative consumer approach (by assuming quasi-linear preferences) and used revealed-preference arguments. En passant, their ...

C have long faulted the wide-spread practice of trade promotions as wasteful. It has been estimated that this practice adds up to $100 billion worth of inventory to the distribution system. Yet, the practice continues. In this paper, we propose a price discrimination model of trade promotions. We show that in a distribution channel characterized by a dominant retailer, a manufacturer has incent...

We derive bounds on the ratio of a monopolist’s profit from third-degree price discrimination to that from uniform pricing. If the monopolist serves N independent markets, demand is continuous, and the cost function is superadditive, then the profit ratio is bounded by N. A linear-demand example is provided coming arbitrarily close to this bound. We provide examples showing the profit ratio can...

When firms are able to recognize their previous customers, they may be able to use their information about the consumers’ past purchases to offer different prices and/or products to consumers with different purchase histories. This article surveys the literature on this “behavior-based price discrimination.” *Forthcoming in the Handbook on Economics and Information Systems, Elsevier. We thank M...

First-degree price discrimination is a prevalent practice in business markets given the private nature of the interactions between buyers and sellers. Some customers accept paying higher prices because they have imperfect information about the distribution of prices or cannot afford to switch to an alternative in the short run. However, customers may become aware (imperfectly) where the prices ...

Firms’ fob prices can vary depending on the distance to the destination market for two reasons: (i) firms can charge a different markup (ii) they can offer a product with slightly different quality. In theoretical models, distance generally covers transport costs. This paper shows that the response of firms’ prices to changes in distance to the destination market depends on the formulation of t...

Recent papers have argued that a monopoly firm might be able to maximize its profit by allowing some customers to steal its product. In particular, with network externalities, it is claimed that allowing piracy can be profitable because it increases the user base of the product and raises the willingness-to-pay of other customers. In this paper we analyze these claims when the producer can free...