Working Paper: NBER ID: w16988
Authors: Igal Hendel; Aviv Nevo
Abstract: We study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we offer a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales: (1) capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and (2) increase total welfare.
Keywords: Intertemporal Price Discrimination; Storable Goods; Consumer Behavior; Welfare; Market Dynamics
JEL Codes: D43; E3; L1; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intertemporal price discrimination (D15) | sellers capturing profit gap (D40) |
| intertemporal price discrimination (D15) | total welfare increases (D69) |
| sales (M31) | price-sensitive consumers storing goods (D12) |
| intertemporal price discrimination (D15) | sellers benefiting from higher profits (D49) |
| intertemporal price discrimination (D15) | consumers who store benefiting from lower prices (D16) |
| consumers who do not store (D16) | consumers experiencing loss (D12) |
| gains of storers (Y20) | offset losses of non-storers (G33) |
| third-degree price discrimination (D40) | sellers increasing profits (D49) |