Price Discrimination and Market Power
If there is price discrimination, at least one of the prices is not equal to marginal cost. Therefore, if there is price discrimination, there must be market power. While this logic is sound, it has led many policymakers to believe that price discrimination and market power are positively correlated. We present a model where measured price discrimination can be low while market power is high, and price discrimination can be high while market power is low, thus demonstrating that there is no theoretical connection between the strength of price discrimination and that of market power. We then present new evidence that price discrimination is negatively correlated with market power in the U.S. airlines industry.
Year of publication: |
2004-09
|
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Authors: | Carbonneau, Shane ; McAfee, Preston ; Mialon, Hugo ; Mialon, Sue |
Institutions: | Department of Economics, Emory University |
Saved in:
freely available
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