History-based price discrimination and entry in markets with switching costs: A welfare analysis

Gehrig, Thomas; Shy, Oz; Stenbacka, Rune

doi:10.1016/j.euroecorev.2010.09.001

Cited by 59 publications

(53 citation statements)

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“…Our results regarding the implications of history-based price discrimination for competition and welfare in an asymmetric Hotelling model are perfectly consistent with this view as far as the procompetitive effect is concerned. However, in light of the related analysis undertaken in Gehrig, Shy, and Stenbacka (2010) of the effects of history-based price discrimination on entry, the results for the asymmetric Hotelling model do not support this view as far as the exclusionary anticompetitive aspects are concerned. In fact, as Gehrig, Shy, and Stenbacka (2010) make clear, with asymmetric Hotelling competition the entry decision of a firm with no access to information about consumers' purchase histories is invariant to whether the incumbent implements history-based pricing or uniform pricing.…”

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confidence: 44%

“…In fact, as Gehrig, Shy, and Stenbacka (2010) make clear, with asymmetric Hotelling competition the entry decision of a firm with no access to information about consumers' purchase histories is invariant to whether the incumbent implements history-based pricing or uniform pricing. Furthermore, as far as the welfare implications are concerned consumers tend to benefit from behavior-based price discrimination if also the small firm can apply behavior-based pricing, whereas behavior-based pricing reduces consumer surplus if the dominant firm has exclusive access to price discrimination, as Gehrig, Shy, and Stenbacka (2010) demonstrate. This finding suggests that the welfare implications of history-based pricing are highly case-specific.…”

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confidence: 99%

“…These studies focus on price discrimination within a framework where the dominant firm operates in an exogenously determined sheltered segment as well as a segment subject to competition. Relatedly, Gehrig, Shy, and Stenbacka (2010) design a Hotelling model to analyze the effect of history-based price discrimination on entry in a configuration where the entrant has no access to information about consumers' purchase histories. Within such a context they conduct a welfare analysis of history-based price discrimination.…”

Section: Literature Reviewmentioning

confidence: 99%

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A Welfare Evaluation of History-Based Price Discrimination

2011

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We design an asymmetric duopoly model with inherited market dominance such that the dominant firm and the small firm can price discriminate based on consumers' purchase history. We show that uniform pricing softens competition leading to higher industry profits than under history-based pricing. Consumers benefit from history-based price discrimination unless the switching cost is sufficiently high and the inherited degree of dominance is sufficiently weak. A ban on history-based pricing would typically introduce a distributional conflict between consumers and producers. Finally, we establish that the gains to industry profits associated with uniform pricing exceed the associated losses to consumers. JEL Classification: D4, L1, L41

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confidence: 99%

Section: Literature Reviewmentioning

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A Welfare Evaluation of History-Based Price Discrimination

2011

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“…Gehrig et al (2011) study a model closely related to mine, but a priori constrain the entrant to uniform pricing; I show that entrants can in fact elicit such information through second-degree price discrimination, and allowing for this reverses their social welfare result. In Chen (2008), an incumbent has a captive segment and faces entry only in a competitive segment; price discrimination by the entrant is thus precluded.…”

Section: Introductionmentioning

confidence: 99%

Price Discrimination in Asymmetric Industries: Implications for Competition and Welfare

Gnutzmann

2014

SSRN Journal

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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. Terms of use: Documents in AbstractPrice discrimination by consumer's purchase history is widely used in regulated industries, such as communication or utilities, both by incumbents and entrants. I show that such discrimination can have surprisingly negative welfare effects -even though prices and industry profits fall, so does consumer surplus. Earlier studies that did not allow entrants to discriminate or assumed symmetric firms yielded sharply different results, the pro-competitive effect of price discrimination are stronger in these settings. Imposing a pricing constraint on incumbent's discrimination leads the entrant to discriminate more heavily, but still improves both consumer and producer welfare.

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“…Gehrig et al (2010) consider that the entrant has no customer information and therefore, cannot discriminate between customers. The incumbent, in contrast, has consumer information and can discriminate between loyal and other customers.…”

Section: Introductionmentioning

confidence: 99%