Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89234
Authors: 
Möller, Marc
Watanabe, Makoto
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-185/V
Abstract: 
This paper sheds light on a recent empirical controversy about the effect of competition on price discrimination in airline markets (Borenstein and Rose (1994), Gerardi and Shapiro, (2009)). We introduce individual demand uncertainty into Hotelling’s model of horizontal product differentiation and show that in equilibrium, firms offer advance purchase discounts. Consumers trade–off an early (uninformed) purchase at a low price against a late (informed) purchase at a high price. Relative to a (multi-product) monopolist, competing firms offer larger discounts, leading to an intertemporal distribution of sales that is more skewed towards low prices. We show that whether competition has a positive or a negative effect on the Gini coefficient of price dispersion depends on the degree of product differentiation and the level of demand uncertainty.
Subjects: 
Competition
Price Dispersion
Individual Demand Uncertainty
Advance Purchase Discounts
JEL: 
D43
D80
L13
Document Type: 
Working Paper

Files in This Item:
File
Size
534.48 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.