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MARKET SEGMENTATION WITH NONLINEAR PRICING *
Author(s) -
SONDEREGGER SILVIA
Publication year - 2011
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2011.00445.x
Subject(s) - market segmentation , segmentation , competition (biology) , quality (philosophy) , welfare , business , aggregate (composite) , economics , microeconomics , industrial organization , marketing , market economy , computer science , biology , artificial intelligence , ecology , philosophy , materials science , epistemology , composite material
We study the benefits and drawbacks of allowing firms to offer different price‐quality menus to captive consumers and to consumers more exposed to competition (market segmentation). We show that the effect of market segmentation depends on the relationship between the range of consumer preferences found in captive and competitive markets. When the range of consumer preferences in captive markets is ‘wide,’ segmentation is quality and (aggregate) welfare reducing, while the opposite holds when the range of consumer preferences in captive markets is ‘narrow.’ Segmentation always harms captive consumers, while it always benefits consumers located in competitive markets.