Retail Discrimination in Search Markets

Maarten Janssen and Edona Reshidi

No 12945, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the incentives of manufacturers to discriminate between exante symmetric retailers who compete for consumers with different search cost. By discriminating, a manufacturer indirectly screens searching consumers, creates more retail competition, increases its profits, but lowers consumer welfare. Low-cost retailers sell to a disproportionate share of low search cost consumers, providing strong incentives to compete; high-cost retailers also lower margins given their smaller customer base. For wholesale price discrimination to be an equilibrium outcome, some form of commitment is necessary. Legislation requiring sales at the recommended retail price serves as such a commitment device, making consumers worse off.

Keywords: Vertical relations; Consumer search; Double marginalization; Wholesale price discrimination (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-mic and nep-ure
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Citations: View citations in EconPapers (2)

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