edf40wrjww2CF_PaperMaster:Desc
Price Discrimination
There is strong evidence in th? marketing literature that consumers are very different in terms of their willingness to pay for products. Empirical studies report high variability in consumers’ responsiveness to marketing-mix variables such as prices, in-store displays, and feature advertisements, as well as in their intrinsic preferences for brands. This empirical consistency suggests that firms have an opportunity to price discriminate profitably rather than charge ? uniform price to all consumers (Gilbert, 2003, pp. 89).
There is ? vast literature in economics on th? theory of price discrimination , and ? number of important papers in marketing have discussed different forms of price discrimination and how they might be implemented in practice. Whilst price discrimination by ? monopolist always leads to profits that are at least as large as those under uniform pricing, th? competitive implications of price discrimination in oligopoly markets are more subtle. Shaffer and Zhang (1995), for example, show in ? theoretical model that targeted leads to ? person’s dilemma in which all manufacturers issue coupons without profitably increasing their prices. Competing firms may gain incremental profits when consumer target ability is very imprecise. However, as target ability improves, they also find th? prisoner’s dilemma (Gilbert, 2003, pp. 89). Price discrimination by all competing firms may lead to “all-out competition,” which results in prices and profits getting reduced in all market segments (Gilbert, 2003, pp. 89). However, there are also counterexamples for which competitive price discrimination may lead to increased profits (Arrow, 196 ...