Working Paper: CEPR ID: DP12823
Authors: Natalia Fabra; Mar Reguant
Abstract: We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers' di erences 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 nd that the price comparison across consumers as well as the e ects of banning price 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 bene t of the medium-size ones.
Keywords: third-degree price discrimination; search; bid solicitation; competition
JEL Codes: D43; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observable heterogeneity among buyers (F61) | price discrimination (D40) |
| buyer size (L81) | search behavior (D83) |
| search behavior (D83) | price discrimination (D40) |
| search cost distribution elasticity (D39) | seller beliefs (L85) |
| seller beliefs (L85) | pricing strategies (D49) |
| buyer size and search cost elasticity (D12) | pricing outcomes (L11) |
| price discrimination (D40) | outcomes under uniform pricing (L11) |
| search cost distribution elasticity (decreasing) (D39) | lower prices for larger buyers (L11) |
| search cost distribution elasticity (increasing) (D39) | lower prices for smaller buyers (D41) |
| ban on price discrimination (L42) | hurt small and large buyers (D49) |
| ban on price discrimination (L42) | benefit medium-sized buyers (D40) |