Price Discrimination, Consumer Information and Welfare

Résumé

The usefulness of price discrimination, predatory pricing and penetration pricing laws triggers debates among competition authorities and economists ever since the Robinson-Patman Act. The aim of this paper is to shed light on price discrimination strategies by empirically investigating competitive effects and consumer behavior in reaction to firms’ ability to discriminate prices. The exploitation of unique individual consumer-level data combined with a random coefficient model, which can account for varying consumer preferences and product heterogeneity, ensures a sound analysis. Results show that price differences are not solely due to shifts in supply and demand, but also due to “price-skimming” techniques practiced by manufacturers and retailers to extract more profits from consumers. Moreover, the empirical framework allows the assessment of explicit policy implications with respect to consumer welfare and competition via a counterfactual analysis.