When Is Price Discrimination Profitable?

Abstract

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Multi-channel price differentiation: An empirical investigation of existence and causes

“…In line with our expectations and the analytical findings of Anderson and Dana (2009), we show that company revenue, which serves as a proxy for company size, has a significant positive effect on both price differentiation occurrence and extent (7.98E−12 for the probability of engaging in price differentiation, p b .01 and 1.79E−12 for the price gap, p b .01). Both lower costs and greater experience with pricing strategies are probably the drivers of this effect.…”

“…For example, Anderson and Dana (2009) derive conditions for profitable price differentiation that generalize existing results in the literature and apply to various forms of self-selection price differentiation. The authors show that price differentiation is profitable if the ratio of the marginal social value from an increase in quality to the total social value of the good increases with consumers' willingness to pay (Anderson & Dana, 2009). Iyer and Seetharaman (2003), who use survey data to investigate gasoline stations and their incentives to price differentiate, find that a larger income spread in the market leads to a greater likelihood of gasoline stations' price differentiating.…”

“…Based on their analytical model, Anderson and Dana (2009) argue that a firm that faces a lower cost level is more likely to engage in price differentiation. Among various factors that can drive the cost structure, company size has been argued to play an important role (Shepard, 1991).…”

Price Stickiness: Empirical Evidence of the Menu Cost Channel

“…Explanations for uniform pricing have focused on simplifying the purchasing decision (Hauser & Wernerfelt, 1990;Iyengar & Lepper, 2000;Draganska & Jain, 2001), avoiding an adverse quality signal for the lower-priced item (Anderson & Simester, 2001;Orbach & Einav, 2007), the managerial cost of setting different prices for different variants (Leslie, 2004;McMillan, 2005), homogeneity in consumer preferences across different flavors (Draganska & Jain, 2006;Anderson & Dana, 2009), demand uncertainty (Orbach & Einav, 2007), and customer fairness (Andersen & Simester 2008).…”

Nonlinear pricing for stochastic container leasing system

“…This assumption is quite usual in literature (Anderson and Dana Jr, 2009, Armstrong, 1996, Myerson, 1981. A customer rents…”