Search and Wholesale Price Discrimination

Guillermo Marshall

RAND Journal of Economics, 2020, vol. 51, issue 2, 346-374

Abstract: Firms often choose not to post prices in wholesale markets, and buyers must incur costs to discover prices. Inspired by evidence of customized pricing (e.g., some customers pay up to 70% more than others) and search costs, I estimate a search model to study how personalized pricing impacts efficiency in a wholesale market. I find that price discrimination decreases total surplus by 11.6% and increases the sellers' profits by up to 52.1%. These effects are partially explained by price discrimination softening competition through a decrease in search incentives, illustrating how price discrimination may magnify the efficiency costs of search frictions.

Date: 2020
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