Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, September 21, 2011

Multiproduct pricing and the Diamond Paradox

Posted by D. Daniel Sokol

Andrew Rhodes analyzes Multiproduct pricing and the Diamond Paradox.

ABSTRACT: We study the pricing behavior of a multiproduct monopolist, when consumers must pay a search cost to learn its prices. Equilibrium prices are high because rational consumers understand that visiting the store exposes them to a hold-up problem. However a firm with more products attracts more consumers with low valuations, and therefore charges lower prices. We also show that when the firm advertises the price of one product, it provides consumers with some indirect information about all of its other prices. The firm can therefore build a store-wide ‘low-price image’ by advertising just one product at a low price.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/09/multiproduct-pricing-and-the-diamond-paradox-.html

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