How(Not)to Price Discriminate—Analysis Based on a Two-Dimensional Model with General Consumer Distribution
It is usually found in the literature that price discrimination based on one-dimensional prod-uct differentiation hurts firms but benefits consumers.Based on a two-dimensional product differentiation model with best-response asymmetry,We find:(1)Price discrimination has a reduced demand elasticity effect in two-dimensional models but not in one-dimensional models.(2)Price discrimination on one and the same dimension can raise profits and uniform price lies in between the discriminatory prices,similar as the results in one-dimensional price discrimination models but with best-response symmetry.(3)Price dis-crimination on one but different dimensions and on both dimensions is likely to lower profits,mimicking the results in one-dimensional models with best response asymmetry.This paper highlights the importance of consumers distribution and dimensions,when analyzing the effects of price discrimination.The govern-ment regulation should fully consider the effects of these factors.
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