We study oligopolistic competition by ﬁrms practicing second-degree price discrimination. In line with the literature on demand estimation, our theory allows for comovements between consumers’ taste for quality and propensity to switch brands. If low-type consumers are suﬃciently less (more) brand loyal than high types, (i) quality provision is ineﬃciently low at the bottom (high at the top) of the product line, and (ii) informational rents are negative (positive) for high types, while positive (negative) for low types. We produce testable comparative statics on pricing and quality provision, and show that more competition (in that consumers become less brand-loyal) is welfare-decreasing whenever it tightens incentive constraints (so much so that monopoly may be welfare-superior to oligopoly). Interestingly, pure-strategy equilibria fail to exist whenever brand loyalty is suﬃciently diﬀerent across consumers types. Accordingly, price/quality dispersion ensues from the interplay between self-selection constraints and heterogeneity in brand loyalty.
competition; price discrimination; asymmetric information; preference correlation; price dispersion;
- D82: Asymmetric and Private Information • Mechanism Design
Renato Gomes, Jean-Marie Lozachmeur, and Lucas Maestri, “Nonlinear Pricing in Oligopoly: How Brand Preferences Shape Market Outcomes”, TSE Working Paper, n. 22-1326, March 2022.
TSE Working Paper, n. 22-1326, March 2022