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Pricing Strategies with Costly Customer Arbitrage

Pricing Strategies with Costly Customer Arbitrage A monopolist’s ability to conduct non-linear pricing is limited because customers can, at a cost, unbundle bundled output. Three pricing strategies are available to a firm: (1) a separating strategy; (2) a pooling strategy; and (3) an exclusion strategy. Each is optimal for some set of unbundling cost and distribution of customer types. The optimal pricing strategies are contrasted with the well-studied benchmark cases, in which unbundling costs are either zero or arbitrarily high. It is shown that it is not always possible to extrapolate the conclusions from the benchmark cases with respect to pricing, profitability, consumer surplus or efficiency. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Pricing Strategies with Costly Customer Arbitrage

Review of Industrial Organization , Volume 50 (3) – Jul 14, 2016

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References (15)

Publisher
Springer Journals
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
DOI
10.1007/s11151-016-9533-0
Publisher site
See Article on Publisher Site

Abstract

A monopolist’s ability to conduct non-linear pricing is limited because customers can, at a cost, unbundle bundled output. Three pricing strategies are available to a firm: (1) a separating strategy; (2) a pooling strategy; and (3) an exclusion strategy. Each is optimal for some set of unbundling cost and distribution of customer types. The optimal pricing strategies are contrasted with the well-studied benchmark cases, in which unbundling costs are either zero or arbitrarily high. It is shown that it is not always possible to extrapolate the conclusions from the benchmark cases with respect to pricing, profitability, consumer surplus or efficiency.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jul 14, 2016

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