Tuesday, March 27, 2012
Posted by D. Daniel Sokol
MANUEL BECERRA (Instituto de Empresa) and JUAN SANTALO (Instituto de Empresa) discuss Differentiation and the relationship between product market competition and price discrimination.
ABSTRACT: We investigate how the effect of competition on price discrimination varies depending on the level of quality provided by companies in the hospitality industry. Our findings reconcile conflicting results of previous literature on this topic. Namely, we provide strong empirical evidence that competition affects differently the price of single and double rooms of hotels with greater quality versus those with lower quality. In the presence (absence) of differentiation, competition increases (decreases) price discrimination. Our findings are robust to the use of econometric techniques that alleviate endogeneity concerns.