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Essays on price discrimination in imperfectly competitive markets Kwong, Lester M. K.


This thesis aims at a theoretical study of price discrimination in imperfectly competitive markets and will address such issues as the viability of price discrimination when markets are oligopolistic rather than monopolistic. More specifically, it seeks to determine what effects the introduction of competition to a monopoly market will have on a firm's ability to price discriminate. Also examined is price discrimination in the presence of collusion among consumers, as well as the connection between a monopolist's linear pricing and resale among consumers. The first paper is a version of an article published in the Canadian Journal of Economics and examines a simple two stage game in which firms compete in prices by a chosen pricing instrument. The instruments considered include a simple uniform pricing technology and a promotional pricing technology in the form of an advertised discount coupon. Consumers are separated by types, informed and uninformed. Therefore, a motive for price competition exists for the purpose of separating between the two types of consumers. It is shown that the sustainability of an asymmetric choice of pricing instrument between the two firms will prevail in a duopoly market in equilibrium. Consequently, the coexistence of two different pricing schemes is viable even when firms are symmetric in all other respects. In light of this finding, justification may be established for the observed differences in pricing strategies in markets today. The second paper considers a model of homogeneous good Bertrand competition with asymmetric information. Consumers differ in a unidimensional type space and are grouped exogenously as either loyal or bargain-hunting. It is found that in such an asymmetric information environment, the equilibrium is unique and exists in mixed strategies. Furthermore, firms will compete via nonlinear price schedules similar to that of a monopolist to the extent that a "flattening out" effect takes place. More importantly, competition occurs in the reservation utility of the marginal consumer by use of pseudo-incentive compatible direct mechanisms. Lastly, the third paper examines the standard nonlinear pricing model where we introduce a set of consumers who may act cooperatively in a pairwise manner (colluders). We model collusion by introducing a third party whose objective is to maximize the sum of utilities for any colluding pair. We assume that this third party is perfectly informed regarding the private information of the consumers. We find that in this framework, a multidimensional screening problem, due to the two dimensional private information held by a colluding pair, arises. We introduce a reduction method by which the representation of this multidimensionality may be suppressed. A sufficient condition for its existence is then characterized. This allows us to provide an equivalent representation which coincides with the standard nonlinear pricing model. Generalizations about asymmetric coalition sizes are then made possible.

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