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Differential Pricing and Efficiency
Abstract
The classic prescription for economically efficient pricing - set price at marginal cost - is not relevant for technologies that exhibit the kinds of increasing returns to scale, large fixed costs, or economies of scope found in the telecommunications and information industries. The appropriate guiding principle in these contexts should be that the marginal willingness to pay should be equal to marginal cost. This condition for efficiency can be approximated using differential pricing, and will in fact, be a natural outcome of profit-seeking behavior.
... In third-degree price differentiation, a firm can identify distinct segments of customers with different willingness to pay and, accordingly, charge them different prices for the same product or service (Varian, 1996;Hayes and Miller, 2011). A real-world example of this classic form of differential pricing is when a hotel charges leisure customers a lower rate than business customers for the same room on a given arrival date. ...
... A real-world example of this classic form of differential pricing is when a hotel charges leisure customers a lower rate than business customers for the same room on a given arrival date. Other examples are senior citizen discounts, student discounts, and the like (Varian, 1996). However, since large customer segments typically contain distinct sub-segments with relatively different willingness to pay, further segmentation and price differentiation are required. ...
... These various restrictions allow customers to self-segment by choosing the restrictions and rates that roughly correspond to their booking preferences and willingness to pay -customers who are not willing to pay for flexible cancellation will choose the non-refundable rate and thus receive a discount and those who are moderately or highly willing to pay for flexible cancellation will choose the partially or fully refundable rates and thus pay a different premium. The presence of such restrictions makes lower rates acceptable to customers with low willingness to pay, especially those who do not mind accepting some restrictions on their purchase experiences (Varian, 1996;Wirtz et al., 2003). On the other hand, it makes these rates less attractive to customers with high willingness to pay, giving them less incentive to trade down (Hanks et al., 1992;Varian, 1996). ...
The main purpose of this study was to examine the influence of related product diversification on the competitiveness and revenue generation potential of individual hotels. For this purpose, a conceptual model was proposed for related product diversification based on a combination of revenue management and price differentiation strategies, including third-degree price differentiation, rate fencing, product versioning, product bundling, and value-based pricing. The conceptual model was empirically tested in the Jordanian hotel industry using questionnaire data covering the period 2016-2018. The data were obtained from a sample of 128 individual star-rated hotels and examined using principal component analysis followed by hierarchical multiple regression analysis. Overall, the results provided solid evidence supporting the proposed conceptual model. The results showed that the five strategies underlying the conceptual model significantly and positively affect hotel property-level competitiveness, both separately and in combination. These strategies can be merged and coordinated into two underlying interrelated strategies, namely, product non-physical diversification and product physical diversification. Greater competitiveness (higher revenue generation potential) can be achieved when the two underlying strategies are applied jointly than when applied separately. Individual hotels that actively and jointly use these two strategies can accommodate a wide range of customers with different needs and budgets, thereby increasing their average occupancy rates, while also effectively leveraging third-and second-degree price differentiation, thus raising their average room rates, and, ultimately, achieving higher RevPARs than their direct competitors. Based on these findings, several recommendations were formulated to improve the competitiveness and revenue generation potential of individual hotels, particularly those operating in challenging and highly competitive markets.
... In all cases, there is present third-degree price discrimination based on sorting consumers into at least two groups with different price elasticities. b) Group, segment pricing: Appears in several reviewed studies (Baumol & Swanson, 2003;Shang et al., 2007; Economics Varian, 1996) as different pricing for each different, separated groups of consumers. This pricing is taken as a synonym for the third-degree price discrimination (Shapiro & Varian, 2008) where separation of groups is not just related to their identification but mainly to the incapability of sharing or reselling goods. ...
... cost recovery or profit-maximising models with no specific goods in mind (Abdallah, 2019;Bhargava & Choudhary, 2001;Huang & Sundararajan, 2011;Neuteleers et al., 2017;Schuler, 2012;Vickers, 1997); a general discussion of the price discrimination problem in connection to the specific cost structure (Baumol & Swanson, 2003;Varian, 1996); an application possibility of other-thanstandard economic methods to solve coststructure-caused issues and their influence on pricing (Schwind & Wendt, 2002;Shang et al., 2007). All of the reviewed articles stress the problem of negligible marginal cost. ...
... In other words, there is high production but low reproduction cost (Stahl & Siegel, 2005). The most cited example was a software where most of the cost originated in a development (Baumol & Swanson, 2003;Chellappa & Mehra, 2018;Cox, 2017;Shang et al., 2007;Varian, 1996). One more installation, one more file downloaded or DVD manufactured, all this created only negligible cost compared to wages of coders, beta-testers, and other human resources needed to deliver safe and efficient software. ...
It is not uncommon that articles focused on consumer-price interaction in the network and information goods market swiftly condemn price discrimination as an obfuscation, on-purpose price complexity, or market failure. The reason is a general neoclassical rule of an efficient market where prices are set at marginal cost with no price discrimination. However, the matter is more complicated. This review provides authors an overview of why, where, and which type of price discrimination should be viewed by different optics. Goods such as software, cell carrier services, electronic newspapers subscription, electric energy supply, payment accounts, books, copyrighted content streaming, etc, cannot be treated like manufactured goods. The reasons are specific conditions – substantial and/or repeated fixed/sunk cost, economies of scale, and demand heterogeneity. Recognized economist W. J. Baumol described marginal cost set prices under these conditions as an ‘economic suicide’. Reviewed articles showed that firms are forced to adopt price discrimination in order to recover their costs and to serve more consumer segments. Reviewed authors provided facts to support the use of multipart tariffs, dynamic pricing, versioning, bundling, and Ramsey pricing. These conclusions are used for suggestions on how several studies of information and network goods should be modified. Modifications are related mostly to model assumptions and pricing conclusions. I argue that, in the case of information and network goods, there is justified price discrimination. Hence, there is a certain justified level of price complexity that has to be accepted and not taken as automated evidence of inefficiency, market power, and consumer exploitation.
... The goal is that the consumer pays the highest amount that they are willing to pay, i.e. the marginal willingness to pay (WTP) [21]. Price discrimination requires information about consumers and the producer's ability to estimate the consumer's marginal WTP as accurately as possible [19]. In an ideal information environment, the producer can set the price to the consumer's marginal WTP to extract the maximum consumer surplus and maximize his profit. ...
... The degrees are not mutually exclusive [19]. Personalized price discrimination is based on the segments of third degree price discrimination, with the ultimate goal to achieve a first degree price discrimination. ...
... Nevertheless, as evidenced by the practices of the tourism industry [4,11,13], the implementation of personalized price discrimination is generally feasible. The first key condition to implement it, is sufficient information on the consumers to distinguish them into segments [19,24,25]. Based on the current data collection means, enough information on the consumers is available to derive such segments and to implement third degree price discrimination [17,22]. ...
Developers of pricing strategies in e-commerce businesses see a wide range of opportunities for deploying online price discrimination techniques given their ability to track consumers’ online identity and behavior. In theory, an in-creasing use of personal data enables organizations to show every single con-sumer their own personalized price, which is determined by the consumer’s char-acteristics, e.g. age, gender, surfing history, or location. This paper aims to ex-plore the existence of online price discrimination activities within the German e-commerce market using a three-method approach. First, inquiring the online re-tailers via email and investigating their public documents; second, surveying stu-dents; and third, using a software crawler to simulate surfing activity. Our results do not provide any evidence of individualized price discrimination, which, we argue, is due to economic and political reasons, not technical reasons.
... In choosing the best pricing strategy for a firm, economics researchers have long highlighted the advantages of dynamic and differentiated pricing models over static and uniform prices (Varian, 1996). Marketing theory has also suggested differential pricing is a solution for perishable products (Monroe, 1979 (Sen, Joe-Wong, Ha, & Chiang, 2013). ...
... A major issue we have to address is that price itself can be a perceived as a sign of quality. In neoclassical economic theory of consumer behavior, price is treated as an exogenous variable (Varian, 1996). The price is only considered to be a budget constraint and is used in modeling to construct indifference curves. ...
... for two-tailed) well into price differentiation. This also improves the firm's profitability compared to the BEFORE scenario, according to the basic principles of differential pricing from economics (Varian, 1995(Varian, , 1996(Varian, and 1989. ...
" The Repellent Effect of Waste" Abstract This research poses a theory of the Repelling Effect of Waste in services and perishable goods, explores its principles, and proposes the first moderating factor in the literature that we are aware of. The main ideas of our research and the proposed theory focus on the following three areas of contribution to marketing science: [1] We offer insights about waste aversion in services and actual WTP. We carry out experiments to support our theoretical propositions; [2] We propose insights about the decision-making processes that people go through in terms of complexity and choice (relating to 'waste' and in the context of offers and price design), and how cost disclosure interacts with this; [3] We discuss the importance of key variables such as income (or relative wealth), on those processes, and support our propositions with experimental insights. Through a series of six experiments, this research brings evidence of waste aversion in the context of services, which is the main contribution of the research. This research also looks at Willingness to Purchase (WTP) and proposes that Qualitative Cost cues could be an effective and ethical way to increase consumer's willingness to pay a price premium. Our experimental results also show that there is an ethical, cheap and effective way to communicate a price premium to consumers and convince them to buy a premium product: qualitative cost cues. WTP can be increased by up to 36% in potential consumers. Our experiments further show that less is not always more. In many industries, marketers offer features that build additional value of the product or service being offered. Sweeteners, bonus packs, 2-in-1 deals and similar marketing techniques have become commonplace. However, our experiment shows there could be such a thing as too much value, bordering on waste, in an offering, which eventually could put customers off, rather than entice them into buying the product. Keywords: pricing, bundles, pricing of services, service marketing, waste, sustainability, efficiency.
... To be sure, the practice of third-degree price discrimination is in stark contrast to the economist's model of perfect competition where a single uniform price is efficiently set to marginal cost. However, conditions required to achieve perfectly competitive markets are as common as perfect regulation (Varian, 1996;Joskow, 2010). A long list of explicit and implicit assumptions underpin perfect competition, viz. ...
... Crucially, price discrimination is not unambiguously harmful to economic welfareon the contraryprice discrimination in capitalintensive industries is frequently welfare enhancing (Schwartz, 1986;Varian, 1996;Dana, 1999b;Levine, 2002;Baumol and Swanson, 2003;Esteves, 2009;Elegido, 2011;Littlechild, 2014;Simshauser and Whish-Wilson, 2017). In asymmetric markets with non-trivial fixed and sunk costs, banning the practice will usually dampen competition, facilitate collusive behaviour, harm price-sensitive consumers and leave customers overall no better-off (Vickers, 2009;Hviid and Waddams Price, 2012;Littlechild, 2016a;Waddams Price and Zhu, 2016). ...
... Ultimately, sunk costs need to be recovered in some way and average cost pricing of electricity is known to be inefficient and if pursued will produce deadweight losses by comparison to alternate methods (Hotelling, 1938;Lewis, 1941;Coase, 1946;Boiteux, 1949;Bonbright, 1961;Nelson, 1964;Turvey, 1968;Joskow, 1976). Consequently whether from an economics or public policy perspective, price discrimination whereby nontrivial fixed and sunk costs are differentially recovered from strong (lessprice sensitive) customer segments while allowing for marginal cost pricing in weak (more-price sensitive) segments is known to distribute the firm's cost-recovery task more fairly and in this sense generally displays positive distributional efficiency effects because the former are usually high-income households (Varian, 1996;Dana, 1999a;Marcoux, 2006;Elegido, 2011;Simshauser and Whish-Wilson, 2017;Nelson et al., 2018). 13 ...
In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices. After almost a decade of Full Retail Contestability, the State of Queensland finally removed its regulated
price cap from the residential electricity market in 2016, while almost simultaneously, the two jurisdictions that pioneered this price deregulation reform, Great Britain and Victoria, were questioning their prior policy decision. Queensland makes for a fascinating case study because Southeast Queensland comprises a fully deregulated retail market while Regional Queensland is a regulated monopoly –with common input costs across both zones. Consequently, a regulated monopoly with a uniform tariff and 640,000 customers forms a very large control group, which can be directly compared to the competitive market of more than 1.3 million customers – making such analysis globally unique. Analysis of Queensland market conditions concludes the policy is welfare enhancing, and that British and Victorian concerns regarding price discrimination practices are misguided. To be clear, rising electricity prices are a problem, but price discrimination is not. The deregulated competitive market is, perhaps unsurprisingly, better at regulating the overall average tariff and consumer welfare has been enhanced by $184 million per annum– with some consumer segments very materially better off. However, certain modes of failure remain, viz. an inter-consumer misallocation problem and lack of transparency vis-à-vis the anchoring of discounts – known as the “discounts off what?” problem. The former is currently trivial, and the latter requires further research.
... 9 To be sure, the practice of third-degree price discrimination is in stark contrast to the economist's model of perfect competition where a single uniform price is efficiently set to marginal cost. However, conditions required to achieve perfectly competitive markets are as common as perfect regulation (Varian, 1996;Joskow, 2010). A long list of explicit and implicit assumptions underpin perfect competition, viz. ...
... Crucially, price discrimination is not unambiguously harmful to economic welfareon the contraryprice discrimination in capital-intensive industries is frequently welfare enhancing (Schwartz, 1986;Varian, 1996, Dana, 1999bLevine, 2002;Baumol & Swanson, 2003;Esteves, 2009;Elegido, 2011;Littlechild, 2014;Simshauser & Whish-Wilson, 2017). In asymmetric markets with non-trivial fixed and sunk costs, banning the practice will usually dampen competition, facilitate collusive behaviour, harm price-sensitive consumers and leave customers overall no better-off (Vickers, 2009;Hviid & Waddams Price, 2012;Littlechild, 2016;Waddams Price and Zhu, 2016). ...
... Ultimately, sunk costs need to be recovered in some way and average cost pricing of electricity is known to be inefficient and if pursued will produce deadweight losses by comparison to alternate methods (Hotelling, 1938;Lewis, 1941;Coase, 1946;Boiteux, 1949;Bonbright, 1961;Nelson, 1964;Turvey, 1968;Joskow, 1976). Consequently whether from an economics or public policy perspective, price discrimination whereby non-trivial fixed and sunk costs are differentially recovered from strong (less-price sensitive) customer segments while allowing for marginal cost pricing in weak (more-price sensitive) segments is known to distribute the firm's cost-recovery task more fairly and in this sense generally displays positive distributional efficiency effects because the former are usually high-income households (Varian, 1996;Dana, 1999a;Marcoux, 2006;Elegido, 2011;Simshauser & Whish-Wilson, 2017;Nelson et al 2018). ...
In Australia, as with Great Britain, governments have shown rising concern with the health of competitive residential electricity markets. A core concern is the practice of price discrimination and the rising dispersion of prices. The State of Queensland deregulated its residential electricity market in 2016 when almost simultaneously, the two jurisdictions that pioneered this reform, Great Britain and Victoria, were questioning their prior policy decision. Queensland makes for a fascinating case study because Southeast Queensland comprises a fully deregulated retail market while Regional Queensland is a regulated monopoly – with common input costs across both zones. Consequently, a regulated monopoly with a uniform tariff and 640,000 customers forms a very large control group, which can be directly compared to the competitive market of more than 1.3 million customers – making such analysis globally unique. Analysis of Queensland market conditions concludes the policy is welfare enhancing, and that British and Victorian concerns regarding price discrimination practices are misguided. To be clear, rising electricity prices are a problem, but price discrimination is not. The deregulated competitive market is, perhaps unsurprisingly, better at regulating the overall average tariff and consumer welfare has been enhanced by $184 million per annum – with some consumer segments very materially better off. However, certain modes of failure remain, viz. an inter-consumer misallocation problem and lack of transparency vis-à-vis the anchoring of discounts – known as the “discounts off what?” problem. The former is currently trivial, and the latter requires further research.
... This condition for efficiency can be approximated using differential pricing, and will in fact, be a natural outcome of profit-seeking behaviour." [26] Needless to say, the primary function of government is not to make profits, but to provide for necessary public goods that would increase social welfare. Table 2 shows the relationship between opportunity costs of production and opportunity costs in consumption as determinants of the types of goods. ...
... Since both marginal willingness to pay, and marginal cost amount to zero (or near zero), quantity dependent price needs to be zero to have a Pareto efficient outcome. [26] Marginal cost and marginal price refer to additional consumption units and not to overall costs and overall prices paid for the service. This means that the last consumption unit needs to have zero price. ...
... A necessary condition for Pareto efficiency is that the marginal willingness to pay must equal marginal cost [26]. ...
In the art of photography, the phenomenon of vignetting means blurring of an image at its periphery compared to its centre. Vignettes are a form of road pricing independent of travel distance. Their usage in Croatia was recently rejected while in Europe, the number of countries using them, is increasing. The economic question of using vignettes as a primary source of revenue for the financing of Croatian highways was blurred by economically peripheral but politically sensitive welfare transfer issues. There has been no visible attempt to push the discussion back into the field of economics by using purely economic criteria such as: opportunity cost of usage, “sunk costs”, marginal costs, and total costs recovery. The paper aims at un-vignetting (un-blurring) the issue and re-focusing it towards economic arguments. The approach taken is a deductive-nomological argument based on opportunity costs of usage. The conclusion is straightforward: the vignettes are Pareto efficient since they make the society in general and the consumers in particular ultimately better off even after taking into account compensations. The opportunity costs of usage of congestion-free roads are zero. The optimal quantity-dependent price is then also zero. Since zero price does not recover costs, a differential pricing scheme needs to be put in place: one that does not depend on distance traveled.
... As Schwartz (1986) explained, price discrimination is not unambiguously harmful to economic welfare. On the contrary, price discrimination in capital-intensive industries is frequently welfare enhancing (Varian, 1996;Levine, 2002;Baumol & Swanson, 2003;Elegido, 2011). In asymmetric markets with non-trivial fixed and sunk costs, banning the practice will usually dampen competition, facilitate collusive behaviour, harm price-sensitive consumers, leave customers overall no better-off, and can leave all customers worse-off. ...
... Total welfare is maximised when the marginal good produced is sold at marginal cost. To be clear, in the presence of common fixed & sunk costs, there is no principle in economics that says all prices must be set uniformly to marginal cost (Varian, 1996;Levine, 2002;Baumol & Swanson, 2003). The characteristics of the Victorian market mean that offer prices meet the definition of efficient pricing, and, the Queensland market does not. ...
... And, total quantities sold would reduce thereby raising the average total cost of all remaining cuts of beef, resulting in a higher average unit price. As Borenstein (1985), Holmes (1989), Varian (1996), Dana (1999b), Levine (2002), Baumol & Swanson (2003), Armstrong (2006aArmstrong ( , 2008, Stole (2007), Esteves (2009) and others note, one should not expect predictions of monopoly discrimination theory to survive empirical tests of live data in competitive markets. ...
... Third-degree discrimination takes place when a firm sells its product to different consumers at different prices. This is the most common form of price discrimination (Varian 1996). Second-degree price discrimination takes place when a firm sells different amounts of its product at different prices, regardless of the consumer type (e.g., quantity discounts). ...
... Strategies that try to optimally match various customers" desires are based on market research insights (Dolan and Simon 1996). Empirical data shows that differential pricing is already widespread in industries that exhibit large fixed costs like airlines, telecommunications, or publishing (Varian 1996). Some market segments could not be served without differential pricing and it can even be shown that differential pricing contributes to economic efficiency (Dolan andSimon 1996, Varian 1996). ...
... Society is considered to be better off when resources are used efficiently to maximize the welfare of consumers and producers. Price dispersion has been shown to improve market efficiency and social welfare (Varian 1996;Brynjolfsson and Smith 2000;Borenstein and Rose 1994;Rob 1985). ...
... There are plenty of economic arguments in support of price discrimination induced by differentiated services, in brief differentiated services are important to 1. the customers because they give them the freedom to tailor their individual service re quirements to their particular time and budget constraints and 2. to service providers (ISPs) because then they can use differential pricing (or price dis crimination). This is a very common business practice, which, according to leading economists, serves a useful social purpose by making the economy more efficient (see [11] and references therein). ...
... 11 plots the averages of the performance metrics in a series of simulations with different combinations of class populations ((7? 1, 7/ 2 ) space). Although the fairness is unaffected by the class populations (Figure 3.11(b)), there are certain combinations of (7/ 1, 7/,2 ) which lead 3Simulation 10: System trajectories for heterogeneous, static class populations (same initial state). ...
The theme of this thesis is the design and the analysis of control mechanisms that allow the bandwidth sharing properties of the best effort Internet to be changed in a well-defined and predictable manner. We focus on end-to-end mechanisms, where the end-points are user agent processes running on the hosts. In a conscious attempt to minimise the dependencies on routers and opt for simplicity and scalability the routers maintain the traditional First Come First Serve (FCFS) service discipline. Meanwhile, the end-points are allowed to select from a predefined range of classes with certain control parameters, which carry specific weights and are known to have proportional bandwidth sharing capabilities. Using a deterministic, discrete-time model, we first study the feasibility of such a distributed control scheme, derive the parameter relationships necessary for optimal control and prove system stability. Then we provide an analysis of system efficiency and weighted fairness for a range of control parameters and class populations. Furthermore, packet level simulations and real network experiments with appropriately modified congestion control in the Transmission Control Protocol (TCP), showed that strict weighted fair bandwidth sharing is possible in practice between connections competing simultaneously for bandwidth in the same end-to-end network path but for a limited range of proportional weights and only under modest congestion conditions.
... As Schwartz (1986) explains, price discrimination is not unambiguously harmful to economic welfare. On the contrary, price discrimination in capital-intensive industries is frequently welfare enhancing (Varian, 1996;Levine, 2002;Baumol and Swanson, 2003;Elegido, 2011). In asymmetric markets with non-trivial fixed and sunk costs, banning the practice will usually dampen competition, facilitate collusive behaviour, harm price-sensitive consumers, leave customers overall no better-off, and can leave all customers worse-off (Hviid and Waddams Price, 2012;Littlechild, 2014). ...
... 8 Total welfare is maximised when the marginal good produced is sold at marginal cost. To be clear, in the presence of non-trivial fixed & sunk costs there is no principle in economics that says all prices must be set uniformly to marginal cost (Varian, 1996;Levine, 2002;Baumol and Swanson, 2003). Prima facie the characteristics of the Victorian market suggests offer prices meet the definition of efficient pricing. ...
When capital-intensive monopoly industries are restructured and deregulated, consumer prices commence a natural drift from regulated uniform ‘average cost’ tariffs to competitive differential prices, and this can raise problems for policymakers. Deep discounts are welcomed, high Standing Offers are not. But price discrimination is unremarkable in economics. Indeed, in industries where fixed & sunk costs represent a significant portion of total cost, discriminatory pricing is usually welfare enhancing. Conversely, theory predicts and empirical evidence confirms that regulatory efforts to cherry-pick differential prices in asymmetric markets will damage consumer welfare. In this article, we analyse differential retail electricity offer prices in the Australian States of Victoria and Southeast Queensland and contrast these with industry average total cost and the marginal cost of retail supply. We find deregulated Victoria displays high price dispersion with Standing Offer tariffs 10% above industry average total cost and marginal offers at break-even prices (i.e. 20% below average total cost). In the semi-regulated Southeast Queensland market where a regulated price-cap exists, there is lower dispersion but marginal offers include a 6.7% retail mark-up. Efficient pricing requires the marginal unit produced to be priced at marginal cost and Victoria meets this criteria – but we identify an episode of inter-consumer misallocation due to high Standing Offers. We conclude policy initiatives designed to help firms shift vulnerable households from Standing Offer tariffs is desirable.
... In case of First degree discrimination the vendor offers the same product/service with different prices for different customers. Second degree price discrimination is used when providers sell different units of output for different prices [24]. In this case, customers use self-selection to choose from the offers [25]. ...
... Second degree price differentiations can be quantity-, time-and quality-based [7]. In case of Quantity-based price discrimination the price depends on the amount of the bought goods [24]. When prices differ in different points of times, time-based price discrimination is used. ...
A major condition for commercial success is a well-defined pricing strategy, however, cloud service providers face many challenges around pric-ing. Clearness and transparency in pricing is beneficial for all the actors in the ecosystem, where the currently existing abundance of different pricing mod-els makes decision making difficult for service providers, partners, customers and competitors. In this paper, the SBIFT pricing model is evaluated and up-dated to cloud context. As a result, a 7-dimensional cloud pricing framework is proposed that helps clarifying the possible pricing models in order to let companies differentiate themselves from competitors by price. The framework can be used also as a tool for price model development and communication about cloud pricing. The taxonomy is based on a broad literature review and empirical research on currently used pricing models of 54 cloud providers.
... The heterogeneity of consumers' behavior lies in the differences of price information about consumer products. The works of Salop and Stiglitz (1977) and Varian (1996) are references for understanding price dispersion resulting from information asymmetries. Typically, this means that there are companies that charge low prices to attract informed customers, while other can pursue high-price strategies to sell to consumers who are not so well informed (Gailey, E. D. 2009). ...
... This indicator increases as it approaches the date of travel, particularly in the last week. That allowed us to validate the theory of Varian (1996), which stated that the dispersion of prices will be higher in markets that allow late bookings. The estimation of the Gini coefficient and the coefficient of variation for each airline (used by several authors) confirm the same hypothesis. ...
Last minutes tickets, group tariffs, agency prices, low cost promotions are buzzwords in the intensively competitive airline industry. These are all connect to prices strategies which constrains and simultaneously impels air carriers to analyze and redefine commercial strategic decisions. The low-cost airline model versus legacy carrier model has spurred ongoing debate. With the current world economic crisis (especially in Europe), airlines need to redefine their marketing strategies so as to: (i) survive/compete and (ii) meet consumers’ demands, which are ever-more price-sensitive and questioning the value proposition of the airline carriers. Thus, it seems relevant to revive research on this subject and to unveil some of the elements associated with price discrimination strategies. This study analyzes price dispersion in the intra-European airline market, using a significant sample of the prices posted on the city pairs Lisbon – Paris and Madrid – London. The aims is to test some key factors that may influence price dispersion, which airlines can take into account when developing and evaluating their pricing strategies. Specifically, this work attempts to test the relation between price dispersion among airlines and their capability of price discriminating as a result of their market power and differentiating full service carriers from low cost carriers. The results revealed that neither the full service nor the low cost carriers show differences on price dispersion, when testing the interaction of these type of airlines with each of the market segmentation factors.
... Price discrimination is the most effective element of hotel revenue management (Philips 1999). Economic theory suggests that the highest revenue potential is achieved when price discrimination is practiced (Varian 1996), because the hotel captures more of the consumer surplus, that is, the cumulative difference between the room price and the maximum amount individual customers are willing to pay for that room. The effectiveness of price discrimination-based revenue practices depends on the implementation of two control measures: identification and enforcement (Sonnier et al. 2007;Tsakalozos et al. 2011). ...
Enforcement is a key revenue management price discrimination tool. This study is first to address a hotel industry concern that enforcement is increasingly failing, as 3rd party agents resell unqualified prices to deal-oriented customers. We outline a decision model that involves the discount level (cost saving for the consumer) and information regarding a possible service denial by the hotel (risk to the consumer). Most importantly, this study is first to suggest, and empirically test, the notion that the level of discount might diminish the ability of information regarding service denial to reduce the undesirable behavior.
... pay would not counterbalance the reduction in the consumer surplus of consumers with lower willingness to pay who would be priced out of the market. Price discrimination generally increases the economic surplus; when it comes to the second-degree price discrimination (menu pricing) used in this case, it is virtually impossible for it to adversely affect social welfare compared to uniform pricing (see for example Varian [1996]). Essentially, welfare would be reduced if discrimination caused output to fall; however, in this case, output is greater than it would be with uniform pricing, so consumer surplus is likely to be higher than it would be with uniform pricing. ...
The Institute of Economics, CERS launched a new series of publications entitled “Verseny és szabályozás” (Competition and Regulation) in 2007. Twelve annual volumes have been published so far in Hungarian. The current volume is the second one in English, and it contains 10 selected translations from the crop of the last four years. It offers the reader a glimpse into the current state of research in its chosen field in Hungary.
... Firms often segment customers according to their price sensitivity and charge them differently, which has been labelled price discrimination or price differentiation (or else differential pricing, Varian, 1996). In this regard, authors have provided different definitions and have employed the terminology in various ways. ...
Due to the widespread adoption of revenue management strategies within the hospitality business, pricing has become more and more a central topic both for academics and practitioners. In particular, pricing has evolved towards value-based approaches, dynamic and customized through the use of price differentiation. “Rate fences” are the criteria that hotels adopt to separate customer segments whose service values may differ. The purpose of this chapter is to analyze the academic literature as well as the business practices relating to this subject. The authors propose a logical link between rate fences and the hedonic pricing approach. Main topics are 1) rate fence classifications and 2) the effectiveness of rate fences and their impacts on perceptions of fairness. Overall, this contribution suggests that time-based rate fences are fundamental at the destination level, and they are strictly connected to seasonality. Destinations' policymakers and firms can consider strategies and tools for overcoming seasonality, including special events that may take place in a destination.
... Elmaghraby and Keskinocak, 2003;Van der Boer, 2015). Online markets generate vast stores of demand information, and these data reserves can be exploited to model consumer preferences and optimise dynamic pricing functions (Varian, 1996). For example, with an experimental procedure as simple as A/B testing, marketers can easily capture data on variability in consumer preferences, lending support to price discrimination based on statistical forecasts of supply and demand (Kohavi and Longbotham, 2017). ...
On‐demand service firms secure market power by cultivating and operationalising calculative asymmetries between the platform and labour. In this article, I analyse dynamic (or ‘surge’) pricing as an exemplary calculative technique. I show how the asymmetrical application of price‐setting allows firms to leverage control at the aggregate level while maintaining the façade of autonomy at the individual level, thereby legitimising workers’ classification as independent contractors but solving the coordination problems that the classification introduces. The article complements and extends previous critical research into the platform or ‘on‐demand’ service economy by analysing how management scientists model and simulate on‐demand marketplaces. I consider management science to be a calculative technique for optimising operational efficiency. A critical review of management science provides novel insights into platforms’ efforts to monopolise calculative agency at the expense of other market participants. The article concludes by considering implications for broader critiques of platform labour management.
... This scenario reflects current research, which suggests Pareto efficient outcomes (Varian, 1996), and a positive association between social performance and financial performance (Margolis and Walsh, 2003). Firms which fail to meet these societal demands risk not only their reputations, but their existence (Mintzberg, 1983;Branco and Rodrigues, 2007). ...
Purpose
This paper aims to examine the social responsibility (SR) by Australian football clubs during the late nineteenth century. While there has been some contemporary research linking SR with sporting clubs, there is a dearth of such studies in the historical context.
Design/methodology/approach
This paper uses a qualitative approach and in the absence of annual reports, relies on The Suburban newspaper narratives of club annual general meetings (AGMs). The National Library of Australia’s newspaper digitisation programme was used which is a unique archive in management research.
Findings
Even though it was well-known that football provided a social outlet for watching games, this paper found clubs also engaged in a number of SR-related activities that benefited many stakeholders and the surrounding communities.
Originality/value
Deficient in much of the history of Australian football is the SR that clubs displayed to their stakeholders. This paper lengthens the historical SR literature for sporting clubs, and provides rich and detailed evidence of SR. While Australian football club histories continue to highlight winning teams, premierships and major personalities, their SR contribution is also significant and extends to the foundation of the game.
... The paper presents an analysis of the income the demand for fruits and vegetables, which should be the basis for the development of food policy. In microeconomics, Engel curves are used to describe how the demanded quantity for a particular good or service changes as the income level of the consumer changes (Varian, 1996). For this study, we assume that prices are fixed (Lewbel, 2008). ...
... It depends on what the alternative to versioning might be. According to Varian (1996), the key question is whether versioning leads to an increase in total output. If versioning implies that some groups are served that would otherwise not have been served, versioning may lead to higher welfare. ...
During their joint meeting in Skagen (Denmark) on 6–7 September 2001, the competition authorities of the Nordic countries established a task force to examine the degree of competition in Nordic and European aviation and to suggest measures to enhance it. The Task Force's analyses, main arguments and conclusions are presented in the present report.
... Price discrimination remains a topic dominated by economists and legal scholars, with some economists defending price discrimination (c.f. Baumol & Swanson, 2003;Varian, 1996). Philips (1983), for instance, characterizes price discrimination as 'discriminatory prices [are] required for an optimal allocation of resources in real life situations' (p.1). ...
... It becomes possible to obtain products for buyers who would be priced out of the market if prices are not differentiated. This would be favorable for economic efficiency in consumer goods markets (Varian 1998). ...
New information and communication technology (ICT) makes consumers better informed about available products, product quality and prices, which mitigates problems of asymmetric information. The entry of firms is facilitated, competition and economic efficiency is boosted and the market powers of households increased. Firms are likely to respond by increased product and price differentiation. There will also be considerable changes in the division of tasks between firms and households. But important obstacles to these developments are technological vulnerability, quality problems in the information on the Internet, cognitive limitations of individuals and weaknesses in the product‐delivery infrastructure in connection with Internet trade.
... (Phlips 1983;Varian 1996 ...
... Bireyselleştirilmiş İnternet sayfası yapısı, İnternet sayfa içeriğinin özelleştirilmesi, sayfadaki linklerin özelleştirilmesi, kişiye özel fiyat uygulanması, ürün özelliklerinin kişiye özel hale getirilmesi özelleştirme uygulamalarına örnek olarak verilebilir (Pierrakos vd., 2003). Literatürde rastlanan çalışmalardan Pierrakos ve diğerleri (2003), Murthi ve Sarkar (2003), Varian (1996Varian ( , 2009, Bardakçı (2004) ...
Yapılan araştırmada, kişiye özel fiyat teklifinin içeriğinde kullanılan farklı mesaj çerçevelemelerinin, internette, satın alma sürecine etkisi araştırılmıştır. Satın alma süreci küme teorisi çerçevesinde tanımlanmıştır. Araştırmada veri toplama yöntemi olarak saha deneyi kullanılmıştır. Örneklem büyüklüğü 589 kişidir. Elde edilen veriler Pearson ki-kare ve lojistik regresyon analizi kullanılarak analiz edilmiştir. Analiz sonuçlarına göre; tüketicinin dikkate alınanlar kümesi oluşmadan önce sunulan kişiye özel fiyat teklifinde olumlu mesaj çerçeveleme kullanılması, teklifte bulunan ürünün dikkate alınanlar kümesine girme ve satın alınma ihtimallerini anlamlı derecede artırmaktadır. Bunun tersine, olumsuz mesaj çerçevelemenin ise dikkate alınanlar kümesi oluştuktan sonra tüketiciye önerilen teklif içeriğinde kullanılması satın alma sürecinde ürünün değerlendirilme ve satın alınma ihtimalini artırmaktadır. Araştırmada, teklifte kullanılan mesaj çerçeveleme ve zamanlaması ile müşterinin önerilen ürünü seçim kümesine alması arasında anlamlı bir ilişki bulunamamıştır. Anahtar Sözcükler: Kişiye özel fiyat uygulaması, İnternette pazarlama, mesaj çerçeveleme, deneysel tasarım, lojistik regresyon. Abstract The study investigated the effect of different message frames used in the content of personalized price offer on decision making process on the Internet. Decision making process is described in the framework of consideration set theory. The data collection method is field experiment with a sample size of 589. Data is analyzed with Pearson's chi-square and logistic regression analysis.
... Stigler (1987) arguably has the best definition of price discrimination as where at least two (or possibly more) similar goods are sold at different prices relative to their marginal cost of production. Put simply, economists argue that prices are efficient where the marginal unit produced is priced at marginal cost (Varian, 1996). In electricity, such a statement can require greater consideration given that prices for electricity can reflect fixed charges, demand (i.e. ...
... La industria de las telecomunicaciones, al contrario del pensamiento económico tradicional, no puede considerar "precios a costo marginal" debido a que comúnmente exhiben retornos a escala CGSRR R Centro de Estudios para la Gestión de Servicios en Redes Departamento de Ingeniería Industrial Universidad de los Andes Articulo20.doc Pagina 3 de 7 Preparado por CGSR crecientes, grandes costos fijos y significantes economías de diversificación (Varian, 1996). Esta es la misma razón por la cual los PAI (Proveedores de Acceso a Internet), por conveniencia práctica, ofrecen tarifas planas a sus usuarios. ...
... Price discrimination involves selling different units of output at different prices (Varian, 1996). It occurs when a company charges some customers higher prices than others for the same product. ...
Glavni cilj rada je da se utvrdi da li cene avio-karte monotono rastu tokom vremena. Autori analiziraju tržisno ucesce low-cost avio-kompanija tokom perioda nakon deregulacije avio-saobracaja u Srbiji na linijama koje povezuju Beograd sa drugim destinacijama u svetu. U posmatranom periodu, avio-kompanija Wizz Air je ostvarila najvece povecanje tržisnog ucesca. Ova avio-kompanija je imala monopolisticki položaj na svim linijama izuzev na liniji koja povezuje Beograd sa Rimom u posmatranom periodu. Na osnovu podataka o kretanju cena avio-karata avio-kompanije Wizz Air na liniji koja povezuje Beograd sa Rimom, teoreme o monotonosti funkcije i Spermanovog koeficijenta, rezultati istraživanja ukazuju da postoji korelaciona veza između vremena kupovine karte i njene cene, ali da cene avio-karata ne rastu monotono tokom vremena.
... 20 Profitability is a key issue: one has to decide when and how to personalize prices. 21 In addition, e-pricing approaches must not conflict with strategic objectives or branding and image. Replacing or supplementing "free" goods and services on the Internet with fee-based revenue models therefore becomes problematic. ...
Internet based business is a hothouse for new competitive strategies, especially hybrid strategies, combining cost and customer focus. With respect to mass customization, a prominent representative of hybrid strategies, e-business serves as a lever to transform Mass Customization into Mass Personalization. This strategy is not limited to customizing standard products, but also covers individualising promotion, contracts, and distribution. The article outlines the new strategy by illustrating the potential of e-business for (mass) personalization and the required support from e-business controlling („e-controlling“).
... This moves part of the nonshaded right-hand triangle into a combination of Revenue and Costumer Surplus. That is a positive-sum game, and in some cases it can be shown to result in both higher Revenue and higher Customer Surplus than without applying YM (for example, in cases where the maximum achievable revenue without applying price discrimination does not cover the fixed costs) (Varian, 1996 and2007) Pigou's taxonomy describes three degrees of price discrimination: First-degree (price might differ from person to person, and also among the various units sold to the same person -in its extreme form it leads to perfect discrimination), second-degree (price might be different depending on the number of units bought by the same person, but there is no discrimination among individuals -e.g. volume discounts) and third-degree (price might differ from person to person, but is independent of the number of units bought, e.g. ...
Yield Management based Decision Support Systems offer significant potential for small and medium hotels and hotel chains in terms of better capacity utilization, profitability and ability to compete with larger, international chains. However, the very specific and exacting demand planning requirements of these systems hinder their application by SME. This paper analyzes the differential pricing theoretical foundations of Yield Management to derive the challenging demand planning requirements it imposes. The major stumbling blocks found in meeting these requirements are then studied. The paper then proposes a design approach for the demand planning modules of such a DSS, developed in the framework of both a larger YM based DSS research project and a cooperative project with a small hotel chain, aimed at surmounting these obstacles. This design might provide a viable step towards the actual implementation of these DSS by the Spanish hotel SME.
Price discrimination has become one of the airline industry’s most popular and common pricing strategies. The airline industry mainly uses three levels of price discrimination, charging different values for different customer groups. Due to this strategy, airlines can achieve maximum company profits. There are different types of airlines, and in this paper, we focus on the example of a low-cost airline - Southwest Airlines. Discussing the effectiveness of price discrimination as a pricing strategy in a low-cost airline is the primary purpose of this paper. In this paper, we present the essential background, advantages, and recent achievements of Southwest. How the company has successfully used price discrimination is analyzed and demonstrated with a specific example. Finally, it is concluded that for low-cost airlines, price discrimination is good but not necessarily the most effective and that other pricing strategies are to be considered among them.
Price deregulation in Australia's National Electricity Market has led to increased competition and greater price dispersion in retail electricity markets. However, recent increases in electricity prices and concerns around disengaged customers have led policy makers to impose a ‘default offer’ to cap retail electricity prices. In this article, we develop a model that demonstrates the mechanism through which a price cap leads to the withdrawal of the lowest priced offers from the market, in effect reducing the benefits available to customers that ‘shop around’. We calculate a measure of actual price dispersion showing that a compression of offers since the price cap was imposed has reduced the returns from search by 2.3 per cent, or $37 per year on average. We argue that the important issue of vulnerable, disengaged customers on high priced offers is best addressed through non-price regulation policy options, such as an auction for the right to serve customers that are both vulnerable and disengaged.
In this chapter, we present a survey on some of the commercial players in the Grid industry, existing research done in the area of market-based Grid technology and some of the concepts of dynamic pricing model that we have investigated. In recent years, it has been observed that commercial companies are slowly shifting from owning their own IT assets in the form of computers, software and so forth, to purchasing services from utility providers. Technological advances, especially in the area of Grid computing, have been the main catalyst for this trend. The utility model may not be the most effective model and the price still needs to be determined at the point of usage. In general, market-based approaches are more efficient in resource allocations, as it depends on price adjustment to accommodate fluctuations in the supply and demand. Therefore, determining the price is vital to the overall success of the market.
Im Preismanagement ergeben sich bei der Konzeption von Preismodellen zwei gegenläufige Perspektiven: Einerseits wird diskutiert, wie durch eine Preisdifferenzierung die Zahlungsbereitschaften der Kunden besser abgeschöpft werden können. In diesem Kontext erhält besonders das Dynamic Pricing eine stärkere Beachtung. Eine extreme Weiterentwicklung ist das Dynamic Personalized Pricing, bei dem Kunden in Echtzeit einen auf die Person zugeschnittenen Preis erhalten. Die gegensätzliche Denkrichtung besteht andererseits in einer Preisvereinfachung, zum Beispiel durch ein Abonnement als Flatprice (Netflix) oder in einem zweistufigen System (BahnCard, Amazon Prime). Beide Perspektiven verfügen über ein unterschiedliches Kundenbild und ein differenziertes Zielsystem, können aber trotzdem nebeneinander bestehen.
The question of simultaneous product and process innovation, price discrimination is crucial for technologically-evolving industries. In this paper, we assume that there are two different kinds of consumers, and each consumer has his own demand function. We find that both process innovation and product innovation impact the pricing policy. Depending on the number of consumers, there may exist substitutability between process innovation and product innovation. Moving from single-price regime to second-degree price discrimination, we show that allowing price discrimination will increase investment levels in product and process innovation.
Capitalism has been undergoing a metamorphosis over the last few decades, resulting in a change of phase from industrial capitalism to cognitive capitalism or informational capitalism. Some instead speak of a movement within capitalism from Fordism to post-Fordism that has changed capital’s regime of accumulation and the regulation of the capitalist system, transforming its reproduction. The profit from openness model, introduced in Chap. 1, emerged as a complement and alternative, both to the ideological opposition and to the practical limitations of the profit from enclosures model. It was greatly inspired by the success of the globally peer-produced Linux operating system and the so-called Web 2.0 in the first years of the new millennium. But, all talk of openness warrant a closer look: openness is often used as a synonym to freedom, but it is not. To be open is to be open for someone else’s freedom to act. The kind of openness that fosters commoning and the building of robust commons is one thing, and the openness that supports interoperability in a capitalist world is another thing. This difference is connected to classical ideologies. The study’s ideology analysis is elaborated in the chapter, followed by a presentation of the contemporary discussion about immaterial and digital labor with all its ramifications. Finally, the concepts of commons, peer production and platform are defined and clarified, before introducing the social actors and flows connected to the profit from openness model.
Commercial scholarly publishers promote and sell bundles of journals— known as big deals—that provide access to entire collections rather than individual journals. Following this new model, size of serial collections in academic libraries increased almost fivefold from 1986 to 2011. Using data on library subscriptions and references made for a sample of North American universities, this study provides evidence that, while big deal bundles do decrease the mean price per subscribed journal, academic libraries receive less value for their investment. We find that university researchers cite only a fraction of journals purchased by their libraries, that this fraction is decreasing, and that the cost per cited journal has increased. These findings reveal how academic publishers use product differentiation and price strategies to increase sales and profits in the digital era, often at the expense of university and scientific stakeholders. © 2018 Fei Shu, Philippe Mongeon, Stefanie Haustein, Kyle Siler, Juan Pablo Alperin, and Vincent Larivière, Attribution-NonCommercial.
While macro theorists of informational capitalism have tended to consider intellectual property in a vague and general way, intellectual property researchers have tended to focus on extremely specific issues. What gets missed is an understanding of intellectual property as a system and its relationship with the totality of capitalism. Starting from a cognitive materialist approach, this article offers a systematic account of the recent expansion of intellectual property rights. Thereafter, it situates the data on the expansion of intellectual property vis-à-vis the transition from industrial to informational capitalism and relates that expansion specifically to informational productive processes. It concludes with a general proposition about the relationship between the changes of stage in capitalism and the institutions of intellectual property.
The purpose of this chapter is to investigate the function of a particular type of bundling sales in exploiting the network effect of the division of labour, and in promoting increases in productivity. First we shall survey the existing literature on bundling and tying sales. Then, we move on to consider some common internet phenomena which cannot be predicted by the existing approaches. Finally, we will formulate the effects of bundling sales on the network size of the division of labour by drawing from the literature on endogenous specialization and the network effect of division of labour.
The emergence and commercialization of the Internet and the World Wide Web in particular spurs the creation of electronic allocation mechanisms. Initially, traditional market structures which have developed together with and throughout mankind may serve as a perfect example and framework for electronic business models, as users tend to intuitively understand them (Brandtweiner and Scharl, 1999). Electronic catalogs represent the first step in this direction. During the past few years, companies have put their product catalogs on the Web, in order to make them universally available. Similar to their paper-based counterparts, most electronic catalogs comprise fixed offers in form of static list prices. Search engines and virtual catalogs (Keller, 1997) make it easy for the customer to compare these offers. Bargainfinder has been one of the first experiences with this new kind of competition (http://bf.cstar.ac.com/bf/). Suddenly, strong brands have become commoditized. Especially standardized goods like CD’s, gas, phone carriers, and even established credit card issuers have to find new ways for pricing their goods. Many experts see product and price differentiation as a solution (Varian, 1996). However, sellers still have to set an “optimal” price based on an expected demand curve for a certain good. This is never a trivial task. Therefore, several research projects try to achieve automated negotiation and matchmaking between buyers and sellers on a marketplace, in order to fix prices and conditions of a deal dynamically, based on market conditions.
This chapter is a review of pricing strategies for digital goods. The basis for a number of such strategies is analysed. Using the case of online music, some lessons for the practice of digital pricing are derived.
Green ICT and environmental responsibility in business is not merely a 'nice to have' or 'feel good' concept; neither is it an issue of reluctant compliance by businesses to ever-growing legislation in the carbon economy. There are substantial fundamental business advantages and values to be derived by taking up environmental responsibility. These advantages and values provide a business with an economic as well as a social edge over its competitors. This is particularly true when astute business leaders are able to correlate their understanding of economic growth with environmental responsibility. Incorporating green ICT in the long-term strategic business approach has much more to offer in terms of market standing, legal compliance, good corporate citizenry, and ability to trade and prosper in the carbon economy. This chapter investigates into such strategic advantages resulting from embracing green ICT, and describes and discusses such strategic views from an economic stand-point.
Pricing in online markets has been of much interest to academics and practitioners, particularly for unique IT services. In this paper, we theorize and empirically examine three primary factors that affect provider pricing of outsourced IT services: production cost, competitive dynamics (accounting for competitors' attributes) and frictional cost (accounting for buyers' information). We test the respective role of each of these three complementary pricing strategies with archival data from a leading global online market that specializes in the outsourcing of IT services. The results from our econometric analyses confirm that, besides production cost, service providers also account for the information signals about competing providers' quality when pricing their services, reflecting the rule of market competition and dynamics. Furthermore, service providers also adjust their prices for different service outsourcers with varying perceived frictional costs, which indicates, although online markets are vaunted to reduce transaction costs that outsourcers would otherwise incur offline, they creates new types of frictional costs between providers and outsourcers.
This second edition of eCommerce Economics addresses the economic issues associated with using computer-mediated electronic networks, such as the Internet, as mechanisms for transferring ownership of or rights to use goods and services. After studying this book, students will recognize problems that arise in the electronic marketplace, such as how to gauge the competitive environment, what products to offer, how to market those products, and how to price those products. They also will understand the conceptual tools required to evaluate the proper scope of public policies relating to electronic commerce.
Focusing on the ignorance of co-impacts of network externality, other participants and service quality on telecom business price equilibrium, this paper derives the demand curve from consumers' utilities in the market with network externality. Then, establishes a unified analytical framework of telecom network externality, relative market relation, service quality and price, and makes further analysis about model equilibriums. The results show that both network externality and service quality increase the consumers pay and the profits of the operating system. When network externality is weaker, the decision-making simultaneously between service provider and telecom operator means even better services, less expenditures, and higher system profits, while the sequential decision-making means the first-mover advantage for the first decider. When network externality is stronger, service provider makes decision firstly can bring even better services, more expenditures and higher system profits. As a follower, operator can improve its value acquisition of the business, obtain after-mover advantage through service-enhancement.
Differential pricing has been considered extensively for its potential to increase access to medicines in low- and middle-income countries. A differential pricing system applied within an economic union (such as the European Union [EU]) comprising high-income and middle-income countries would also increase access and provide stronger incentives to invest in the R&D of innovative medicines. Access to innovative medicines is limited in EU markets with relatively low GDP per capita, indicating that the current pricing system does not promote efficient access. This article looks at how theory could be put into practice suggesting ways to implement a differential pricing system in the EU that can enhance overall welfare.
Price discrimination is the practice of charging different customers different prices for the same product. Many people consider price discrimination unfair, but economists argue that in many cases price discrimination is more likely to lead to greater welfare than is the uniform pricing alternative - sometimes for every party in the transaction. This article shows i) that there are many situations in which it is necessary to engage in differential pricing in order to make the provision of a product possible; and ii) that in many such situations, the seller does not obtain an above-average rate of return. It concludes that price discrimination is not inherently unfair. The article also contends that even when conditions i) and/or ii) do not obtain, price discrimination is not necessarily unethical. In itself, the fact that some people get an even better deal than do others does not entail that the latter are wronged.
"September, 1986. Current version: March 15, 1988."--3rd prelim. page. Includes bibliographical references. Financial support from the Center for Energy Policy Research of the MIT Energy Laboratory. by Jerry Hausman and Jeffrey K. MacKie-Mason.
En la UE se ha estimado que los costes de la congesti�n representan el 2% de su PIB y que el coste de la poluci�n del aire y ruido supera el 0,6% del PIB, siendo alrededor del 90% de los mismos ocasionados por el transporte terrestre. Ante este hecho y el continuo aumento de la demanda del transporte privado frente al p�blico para los desplazamientos, muchos abogan por una conjunci�n de medidas tanto restrictivas como alternativas al uso del coche. Dentro de las primeras se encuentra el establecimiento de un peaje o una tarifa por el uso de las carreteras, medida que aunque desde el punto de vista de la Teor�a Econ�mica es la manera m�s eficiente para corregir el fallo de mercado que supone la congesti�n, desde la visi�n de pol�ticos y del p�blico no goza de gran aceptaci�n. En este trabajo se pretende hacer una simulaci�n de los efectos que tendr�a sobre el bienestar social de la implantaci�n de una medida de este tipo en la Bah�a de C�diz. In the European Union it has been estimated that the congestion cost are the 2% of the gross domestic product and the cost of pollution and noise is over 0,6%, olso it is known that the 90% of this cost are caused by overland transport. For this reason and for the always increasing demand of private transport, there are professionals who thinks that the solution have to be restrictive measures added to alternatives to the car. road pricing is a restrictive measures that for the economic theory is the most efficient way to solve congestion cost but for politicians and user of transport is not always accepted. In this study we are going to simulate road pricing for commuters in the Bah�a of C�diz and then it will be estimated welfare effects.
Manufacturers may intentionally damage a portion of their goods in order to price discriminate. Many instances of this phenomenon are observed. It may result in a Pareto improvement. Copyright 1996 The Massachusetts Institute of Technology.
and no doubt several other observers, have made the same point. The contribution of this article is to lay out the economic theory that supports these conclusions
- Huber
Huber [1993], and no doubt several other observers, have made the same point. The contribution of this article is to lay
out the economic theory that supports these conclusions.
School of Information Management and Systems, 102 South Hall
- Hal R Varian
Hal R. Varian, School of Information Management and Systems, 102 South Hall, University of California, Berkeley, CA
94720-4700.
Email: hal@sims.berkeley.edu
URL: http://sims.berkeley.edu/~hal.
Research support from NSF SBR-9320481 and Pacific Telephone is gratefully acknowledged.