Price Discrimination of Congestible Network Goods

Posted by D. Daniel Sokol

Maxime Agbo (Agrocampus Ouest), Marc Santugini (HEC Montreal) and Jonathan W. Williams (University of Georgia) address Price Discrimination of Congestible Network Goods.

ABSTRACT: We study second-degree price discrimination for a congestible network good. We show that the seller does not always provide distinct contracts (i.e., it is not always optimal to price discriminate) and that it is more likely for the low-valuation buyer to be excluded. Because of the network externality through congestion, no buyer receives an efficient allocation. In particular, the high-valuation buyer might be offered a higher or a lower quality (relative to the first-degree price discrimination offer). Moreover, with congestion and for values of the parameters for which all types are serviced, consumer surplus under second-degree price discrimination may be greater than consumer surplus under no price discrimination.