Keywords: Price discrimination, non-linear pricing, package size
Abstract: The standard approach to identifying second degree price discrimination is based
on examining correlations between product menus and prices. When product menus are
endogenous, however, tests for price discrimination may be biased by the fact that
unobservables affecting costs or demand may jointly determine product menus and prices
leading one to falsely infer price discrimination. Attempts to correct for this
potential bias using observed product characteristics or fixed effects are shown to
potentially confound inference on price discrimination leading one to reject it when
firms are actually price discriminating. I propose a difference in differences type
test that exploits the potential correlation between unobserved product attributes,
product menus, and prices.
Full paper (526 KB PDF)
Home | FEDS | List of 2004 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: February 19, 2004