Working Paper: CEPR ID: DP2322
Authors: Tommaso M. Valletti
Abstract: This paper analyzes the problem of price discrimination in a market where consumers have heterogeneous preferences over both a horizontal parameter (brand) and a vertical one (quality). A model with two firms competing over locations and non-linear contracts is analyzed. Discriminatory contracts are first characterized at each location. It is then shown that locations have a big impact on the firms' discriminatory ability and that equilibrium locations are non-monotonic in consumer types; however firms never locate too far away from the first and third quartiles.
Keywords: location; price discrimination; horizontal and vertical differentiation
JEL Codes: D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms' locations (R30) | Discriminatory ability (C52) |
| Discriminatory ability (C52) | Consumer welfare (D69) |
| Firms' locations (R30) | Market outcomes (D49) |
| Firms' locations (R30) | Pricing strategies (D49) |
| Pricing strategies (D49) | Competitive dynamics (L13) |
| Pricing strategies (D49) | Efficiency outcomes (D61) |
| Firms' locations (R30) | Competitive discrimination (J79) |
| Competitive discrimination (J79) | Quality levels (L15) |