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Price Discrimination with Differentiated Products: Definition and Identification
Author(s) -
Clerides Sofronis K.
Publication year - 2004
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbh069
Subject(s) - price discrimination , economics , identification (biology) , marginal cost , limit price , arbitrage , microeconomics , econometrics , law of one price , market price , mid price , price level , financial economics , monetary economics , botany , biology
There is no widely accepted definition of price discrimination with differentiated products. Either absolute price‐cost differences or percentage price‐cost markups are used as benchmarks for comparison. I show that the two criteria are qualitatively different: One may indicate price discrimination when the other does not. Moreover, anything other than marginal cost pricing will be identified as price discrimination by at least one of the two. I propose choosing a criterion based on the cost of arbitrage in the market under examination. Because this is often difficult to determine, it is advisable to always report results with both measures.