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Abstract We study list price competition when firms can individually target consumer discounts (at a cost) afterwards, and we address recent privacy regulation (like the GDPR) allowing consumers to choose whether to opt-in to targeting. Targeted consumers receive poaching and retention discount offers. Equilibrium discount offers are in mixed strategies, but only two firms vie for each contested consumer and final profits on them are Bertrand-like. When targeting is unrestricted, firm list pricing resembles monopoly. For plausible demand conditions and if targeting costs are not too low, firms and consumers are worse off with unrestricted targeting than banning it. However, targeting induces higher (lower) list prices if demand is convex (concave), and either side of the market can benefit if list prices shift enough in its favour. Given the choice, consumers opt in only when expected discounts exceed privacy costs. Under empirically plausible conditions, opt-in choice makes all consumers better off.
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Oligopolistic Price Leadership and Mergers: The United States Beer Industry
We study a repeated game of price leadership in which a firm proposes supermarkups over Bertrand prices to a coalition of rivals. Supermarkups and marginal costs are recoverable from data on prices and quantities using the model’s structure. In an application to the beer industry, we find that price leadership increases profit relative to Bertrand competition by 17 percent in fiscal years 2006 and 2007, and by 22 percent in 2010 and 2011, with the change mostly due to consolidation. We simulate two mergers, which relax binding incentive compatibility constraints and increase supermarkups. These coordinated effects arise even with efficiencies that offset price increases under Bertrand competition. (JEL G34, K21, L13, L14, L41, L66)
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- PAR ID:
- 10311199
- Date Published:
- Journal Name:
- American Economic Review
- Volume:
- 111
- Issue:
- 10
- ISSN:
- 0002-8282
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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- Free Publicly Accessible Full Text
-
Accepted Manuscript1.0
- Journal Article:
- https://doi.org/10.1257/aer.20190913
