Price Discrimination with Varying Qualities of Information

Qihong Liu, Jie Shuai
2013 Social Science Research Network  
We analyze the welfare impacts of price discrimination in a two-dimensional spatial differentiation model. Consumer information of varying qualities is available on one dimension which allows firms to price discriminate, and better information leads to more refined price discrimination. We find that as information quality improves, firms' profits monotonically increase while consumer surplus and social surplus monotonically decrease. Price discrimination has a reduced demand elasticity effect
more » ... ich is absent in one-dimensional models. When information quality increases, the reduced demand elasticity effect becomes stronger, sustaining higher equilibrium prices and profits. We would like to thank Stefano Colombo and Kostas Serfes for helpful comments and suggestions.
doi:10.2139/ssrn.2344777 fatcat:q4qoldkndnb6pk3u7klurincbq