Publications
Publications
- September 2016
- International Journal of Industrial Organization
History-based versus Uniform Pricing in Growing and Declining Markets
By: Oz Shy, Rune Stenbacka and David Hao Zhang
Abstract
We analyze the Markov Perfect Equilibria of an infinite-horizon overlapping generations model with consumer lock-in to compare the performance of history-based and uniform pricing in growing and declining markets. Under history-based pricing, firms charge higher prices to locked-in customers and lower prices to new customers. We show that a high exit rate of consumers (sufficiently declining market) constitutes a sufficient condition for history-based pricing to generate higher average prices than uniform pricing, thereby harming consumer welfare. In contrast, a high consumer entry rate (sufficiently growing market) ensures that history-based pricing intensifies competition compared with uniform pricing.
Keywords
History-based Pricing; Introductory Discount; Uniform Pricing; Consumer Lock-in; High Switching Costs; Demand and Consumers; Competition; Price; Market Entry and Exit; Product Marketing
Citation
Shy, Oz, Rune Stenbacka, and David Hao Zhang. "History-based versus Uniform Pricing in Growing and Declining Markets." International Journal of Industrial Organization 48 (September 2016): 88–117.