American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Discriminating against Captive Customers
American Economic Review: Insights
vol. 1,
no. 3, December 2019
(pp. 257–72)
Abstract
We analyze a market where some consumers only consider buying from a specific seller while other consumers choose the best deal from several sellers. When sellers are able to discriminate against their captive customers, we show that discrimination harms consumers in aggregate relative to the situation with uniform pricing when sellers are approximately symmetric, while the practice tends to benefit consumers in sufficiently asymmetric markets. We also show how the asymmetry of markets may be affected by the information that firms have on consumer captivity.Citation
Armstrong, Mark, and John Vickers. 2019. "Discriminating against Captive Customers." American Economic Review: Insights, 1 (3): 257–72. DOI: 10.1257/aeri.20180581Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L13 Oligopoly and Other Imperfect Markets