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Search and Wholesale Price Discrimination
Author(s) -
Marshall Guillermo
Publication year - 2020
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12317
Subject(s) - price discrimination , search cost , economics , microeconomics , incentive , competition (biology) , limit price , price level , monetary economics , ecology , biology
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.