A model of search with price discrimination

Natalia Fabra and Mar Reguant

European Economic Review, 2020, vol. 129, issue C

Abstract: We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers’ differences are informative about their willingness to search, giving rise to price discrimination even if they all have the same willingness to pay. We analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not. We find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution. Interestingly, for normally distributed search costs, there is an inverted U-shape relationship between prices and buyers’ size. Similarly, a ban on price discrimination hurts small and large buyers, to the benefit of the medium-size ones.

Keywords: Third-degree price discrimination; Search; Bid solicitation; Competition (search for similar items in EconPapers)
JEL-codes: D43 D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Working Paper: A Model of Search with Price Discrimination (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120302014

DOI: 10.1016/j.euroecorev.2020.103571

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