A model of search with price discrimination

Natalia Fabra; Mar Reguant

doi:10.1016/j.euroecorev.2020.103571

A model of search with price discrimination

Natalia Fabra^*, Mar Reguant

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

12 Scopus citations

Abstract

We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.

Original language	English (US)
Article number	103571
Journal	European Economic Review
Volume	129
DOIs	https://doi.org/10.1016/j.euroecorev.2020.103571
State	Published - Oct 2020

Funding

? Joao Montez, Yossi Spiegel and seminar participants at ENTER Jamboree (Madrid) and the Macci Conference (Mannheim) provided useful comments. This paper has greatly benefited from the comments by the referee. All errors remain our own. Fabra is grateful for support from the Ministerio Economia y Competitividad (Spain), Grant ECO2016-78632-P, MDM 2014-0431, and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444).

Keywords

Bid solicitation
Competition
Search
Third-degree price discrimination

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.euroecorev.2020.103571

Cite this

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title = "A model of search with price discrimination",

abstract = "We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers{\textquoteright} differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers{\textquoteright} size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.",

keywords = "Bid solicitation, Competition, Search, Third-degree price discrimination",

author = "Natalia Fabra and Mar Reguant",

note = "Funding Information: ? Joao Montez, Yossi Spiegel and seminar participants at ENTER Jamboree (Madrid) and the Macci Conference (Mannheim) provided useful comments. This paper has greatly benefited from the comments by the referee. All errors remain our own. Fabra is grateful for support from the Ministerio Economia y Competitividad (Spain), Grant ECO2016-78632-P, MDM 2014-0431, and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444).",

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AU - Fabra, Natalia

AU - Reguant, Mar

N1 - Funding Information: ? Joao Montez, Yossi Spiegel and seminar participants at ENTER Jamboree (Madrid) and the Macci Conference (Mannheim) provided useful comments. This paper has greatly benefited from the comments by the referee. All errors remain our own. Fabra is grateful for support from the Ministerio Economia y Competitividad (Spain), Grant ECO2016-78632-P, MDM 2014-0431, and Comunidad de Madrid, MadEco-CM (S2015/HUM-3444).

PY - 2020/10

Y1 - 2020/10

N2 - We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.

AB - We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.

KW - Bid solicitation

KW - Competition

KW - Search

KW - Third-degree price discrimination

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JO - European Economic Review

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A model of search with price discrimination

Abstract

Funding

Keywords

ASJC Scopus subject areas

Access to Document

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