An empirical analysis of competitive nonlinear pricing |
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Institution: | 1. University of Virginia, United States;2. CONICET and Universidad Nacional de Cuyo;1. PUC-Chile;2. Tel-Aviv University;3. KU Leuven;1. Beijing Normal University Hong Kong Baptist University, United International College, 2000 Jintong Road, Tangjiawa, Zhuhai, Guangdong, China;2. Purdue University, Department of Economics, Krannert School of Management, 403 West State Street, West Lafayette, IN 47907-2056, United States;3. CESifo, Poschingerstr. 5, Munich 81679, Germany;1. KU Leuven, Belgium;2. CEPR, UK;3. InterMutualistisch Agentschap, Belgium;1. Department of Economics, University of California, Irvine, United States;2. Departament d’Economia and CREIP, Universitat Rovira i Virgili, Spain |
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Abstract: | We estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses (e.g., doctors, electricians) from two Yellow Page Directories in one U.S. city-market. Variation in individual choices and payments allows us to identify the joint density of preferences, marginal costs of publishing and common utility parameters. Our estimates suggest substantial welfare loss due to asymmetric information. Comparing duopoly outcomes with (counterfactual) monopoly outcomes, we find that with less competition (i) producer surplus increases substantially; (ii) more “low-type” consumers are excluded; (iii) product variety increases, but benefits accrue only to the “high-type” consumers; (iv) total consumer surplus decreases; (v) but its distribution, across consumers, does not change. |
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