A model of search with price discrimination

Natalia Fabra*, Mar Reguant

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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 languageEnglish (US)
Article number103571
JournalEuropean Economic Review
Volume129
DOIs
StatePublished - Oct 2020

Keywords

  • Bid solicitation
  • Competition
  • Search
  • Third-degree price discrimination

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'A model of search with price discrimination'. Together they form a unique fingerprint.

Cite this