A Model of Search with Price Discrimination

30 Pages Posted: 5 Apr 2018 Last revised: 16 Aug 2020

See all articles by Natalia Fabra

Natalia Fabra

Universidad Carlos III de Madrid - Departmento de Economia

Mar Reguant

Northwestern University - Department of Economics

Date Written: March 2018

Abstract

We introduce observable heterogeneity across buyers into a model of simultaneous search. Buyers' di erences 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 nd that the price comparison across consumers as well as the e ects of banning price 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 bene t of the medium-size ones.

Keywords: bid solicitation, Competition, search, third-degree price discrimination

JEL Classification: D43, D83

Suggested Citation

Fabra, Natalia and Reguant, Mar, A Model of Search with Price Discrimination (March 2018). CEPR Discussion Paper No. DP12823, Available at SSRN: https://ssrn.com/abstract=3155159

Natalia Fabra (Contact Author)

Universidad Carlos III de Madrid - Departmento de Economia ( email )

E-28903 Getafe (Madrid)
Spain
+34-91 6249594 (Phone)
+34-91 6249329 (Fax)

Mar Reguant

Northwestern University - Department of Economics ( email )

2001 Sheridan Rd
Evanston, IL 60208
United States

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