Wednesday, October 28, 2015
Haizhen Lin, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy and Isabelle Yijia Wang, NERA Economic Consulting investigate Competition and Price Discrimination: Evidence from the Parking Garage Industry.
ABSTRACT: We study the relationship between competition and price discrimination through an empirical examination of hourly price schedules in the parking garage industry. We find that the degree of price schedule curvature decreases with competition, implying a greater proportionate drop in low‐end prices than in high‐end prices when competition intensifies. Our findings suggest that competition constrains a firm's capacity to exercise price discrimination, confirming the classic textbook theory. We also offer possible explanations for our findings, including a search cost explanation, for which we find some support in the data.