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Two-dimensional price discrimination with uncertainty about willingness-to-pay

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  • Sei Beom Won

    (Korea Fair Trade Mediation Agency)

Abstract

This paper discusses price discrimination in a duopoly in two-dimensional consumer characteristics space. We assume that there is uncertainty about a single unobservable characteristic, willingness-to-pay. We show that the subgame perfect equilibrium supports that both firms choose separate pricing policies, uniform pricing and discriminatory pricing, and the Prisoner’s Dilemma does not occur. This result is maintained when the uncertainty is sufficiently high, and differs from Thisse and Vives’s one-dimensional model in which discriminatory pricing is a dominant strategy. As the uncertainty decreases, the pricing structure converges to Thisse and Vives’s model in which the Prisoner’s Dilemma and all-out competition emerge.

Suggested Citation

  • Sei Beom Won, 2017. "Two-dimensional price discrimination with uncertainty about willingness-to-pay," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 58(3), pages 513-541, May.
    • Handle: RePEc:spr:anresc:v:58:y:2017:i:3:d:10.1007_s00168-017-0806-9
    DOI: 10.1007/s00168-017-0806-9
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    References listed on IDEAS

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    Cited by:

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    2. Baye, Irina & Reiz, Tim & Sapi, Geza, 2018. "Customer recognition and mobile geo-targeting," DICE Discussion Papers 285, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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