MARKET SEGMENTATION WITH NONLINEAR PRICING* |
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Authors: | SILVIA SONDEREGGER |
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Institution: | Department of Economics, School of Economics, Finance and Management, University of Bristol, 12 Priory Road, Bristol BS8 1TN, United Kingdom, and CMPO.e‐mail: S.Sonderegger@bristol.ac.uk |
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Abstract: | We study the benefits and drawbacks of allowing firms to offer different price‐quality menus to captive consumers and to consumers more exposed to competition (market segmentation). We show that the effect of market segmentation depends on the relationship between the range of consumer preferences found in captive and competitive markets. When the range of consumer preferences in captive markets is ‘wide,’ segmentation is quality and (aggregate) welfare reducing, while the opposite holds when the range of consumer preferences in captive markets is ‘narrow.’ Segmentation always harms captive consumers, while it always benefits consumers located in competitive markets. |
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