History-based versus uniform pricing in growing and declining markets

Oz Shy, Rune Stenbacka and David Hao Zhang

International Journal of Industrial Organization, 2016, vol. 48, issue C, 88-117

Abstract: We analyze the Markov Perfect Equilibria of an infinite-horizon overlapping generations model with consumer lock-in to compare the performance of history-based and uniform pricing in growing and declining markets. Under history-based pricing, firms charge higher prices to locked-in customers and lower prices to new customers. We show that a high exit rate of consumers (sufficiently declining market) constitutes a sufficient condition for history-based pricing to generate higher average prices than uniform pricing, thereby harming consumer welfare. In contrast, a high consumer entry rate (sufficiently growing market) ensures that history-based pricing intensifies competition compared with uniform pricing.

Keywords: Growing market; Declining market; History-based pricing; Uniform pricing; Consumer lock-in (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:48:y:2016:i:c:p:88-117

DOI: 10.1016/j.ijindorg.2016.06.002

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