Competitive Price Discrimination

Cm, Armstrong; Vickers, John

doi:10.2307/2696383

Cited by 393 publications

(302 citation statements)

References 43 publications

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“…Besides the finding that price discrimination stimulates demand, there is convincing evidence that competition fosters broadband adoption whereas the exertion of market power hinders it. While market power is often seen as a prerequisite for the existence of price discrimination (Varian, 1989;Posner, 1976), various papers show that price discrimination and market power are not necessarily positively correlated (see, e.g., Armstrong and Vickers, 2001;Borenstein, 1985;McAfee et al, 2006). If, however, the former holds, regulators might face a trade-off between the intensity of competition and the extent of tariff diversity.…”

Section: Robustness Checksmentioning

confidence: 95%

Tariff diversity and competition policy: drivers for broadband adoption in the European Union

Lange

2017

J Regul Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors' own opinions and do not necessarily reflect those of the editor. an increase in tariff diversity provides a significant impetus to broadband adoption, wherefore demands by some public interest groups to limit price discrimination in broadband markets should be viewed with some caution as reduced price discrimination may come at the cost of lower penetration rates. Terms of use: Documents inJEL classification: L86, L96.

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Section: Robustness Checksmentioning

confidence: 95%

Tariff diversity and competition policy: drivers for broadband adoption in the European Union

Lange

2017

J Regul Econ

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“…In fact, if a = c 0 , as can be seen in (17), access price disappears from the profit function and the profit function becomes the same as the one in a standard Hotelling model without interconnection. This is why they rediscover the efficient two-part tariff result obtained by Armstrong and Vickers (2001) and Rochet and Stole (2002) in the context of competitive price discrimination without interconnection between firms. In other words, a = c 0 achieves efficiency by making the case with interconnection similar to the case without interconnection.…”

Section: Heterogeneous Consumersmentioning

confidence: 99%

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

Jeon

Hurkens

2007

SSRN Journal

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We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.

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“…Competitive second degree price discrimination between symmetric firms is often found in works concerned with product line design (Armstrong and Vickers, 2001;Locay and Rodriguez, 1992;SchmidtMohr and Villas Boaz, 2008;Desai, 2001;Champsaur and Rochet, 1989). The closest settings to ours were investigated in Desai (2001) and Schmidt-Mohr and Villas-Boas (2008) in the context of product line design.…”

Section: Review Of Literaturementioning

confidence: 99%

Who should practice price discrimination using rebates in an asymmetric duopoly?

2009

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Price discrimination is generally thought to improve firm profits by allowing firms to extract more consumer surplus. In competition, however, price discrimination may also be costly to the firm because restrictive incentive compatibility conditions may allow the competing firm to gain market share at the discriminating firm's expense. Therefore, with asymmetric competition, it may be the case that one firm would let the other firm assume the burden of price discrimination. We investigate optimal segmentation in a market with two asymmetric firms and two heterogeneous consumer segments that differ in the importance of price and product attributes. In particular, we investigate second-degree price discrimination under competition with explicit incentive compatibility constraints thus extending prior work in marketing and economics. Focusing on the managerial implications, we explore whether it would be profitable for either or both firms to pursue a segmentation strategy using rebates as a mechanism. We identify conditions under which one or both firms would want to pursue such segmentation. We find that segmentation lessens competition for the less price-sensitive consumer segment and that this results in higher profits to both firms. A key to understanding this result is the customer remixing that segmentation leads to. We establish the key result that if firms are asymmetric in their attractiveness to consumers, the disadvantaged firm in our model is more likely to pursue a segmentation strategy than its rival in equilibrium. We then ask whether this result obtains in practice. To this end, we explore competitive segmentation empirically and are able to verify that disadvantaged firms indeed pursue segmentation through rebates with greater likelihood.

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Competitive Price Discrimination

Cited by 393 publications

References 43 publications

Tariff diversity and competition policy: drivers for broadband adoption in the European Union

Tariff diversity and competition policy: drivers for broadband adoption in the European Union

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

Who should practice price discrimination using rebates in an asymmetric duopoly?

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