Nonlinear Pricing: Evidence of Price Discrimination in the Fluid Milk Market

Benjamin Wallace
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Abstract

Firms may use nonlinear price schedules, possibly to the detriment of some consumers, to price discriminate and increase profits. However, it is possible that these nonlinear price schedules may also increase welfare from the consumer's perspective if they are able to serve portions of a market that firms may otherwise ignore. The more extensive theoretical literature on price discrimination shows how firms may use nonlinear price schedules to price discriminate by distorting product characteristics from their efficient levels given heterogeneous preferences among consumers. Additionally, the theoretical literature finds that whether or not this practice is welfare decreasing or increasing from the consumer's perspective depends on a number of factors, thus implying that the welfare implications of price discrimination from the consumer's perspective is an empirical question. Subsequently, some recent empirical papers have found this form of second-degree price discrimination to be welfare decreasing from the consumer's perspective whereas other papers, depending on the analyzed market, have found it to be welfare increasing. In this paper, I study the consumer welfare implications of nonlinear pricing in the market of fluid milk. Variation in the ratio between marginal price per ounce and marginal cost per ounce over the menu of options is evidence that firms are using nonlinear pricing schedules to price discriminate. Once this evidence is shown, I use counterfactual analysis to determine the welfare implications of this practice within the market for fluid milk from the consumer's perspective. I find that firms within this industry are using nonlinear pricing to price discriminate for private label products, of which conservative estimates show that approximately 7.20% of the markup differential between sizes can be explained by price discrimination. However, I find that very little of the markup on Regional branded products, approximately 0.32%, can be attributed to price discrimination. In my most compelling set of counterfactual analyses, I show that consumers are worse off due to price discrimination and my counterfactual analysis shows that households are on average anywhere between $0.0249 to $.0555 to worse off per shopping trip under a forced linear pricing, which corresponds to a total yearly welfare difference between $63 million to $140 million per year within my sample region due to the nonlinear pricing strategies used by firms in the marketplace. Additionally, I estimate and utilize models similar to the status quo in the literature on price discrimination thus far that do not have household demographic characteristics included and compare them my preferred specification which does, showing that ignoring the demographic makeup of the marketplace's individuals and actual consumer decisions leads to potentially biased parameter estimates.
非线性定价:液态奶市场价格歧视的证据
企业可能会使用非线性的价格表来进行价格歧视和增加利润,这可能会损害一些消费者的利益。然而,从消费者的角度来看,如果这些非线性价格表能够服务于企业可能忽略的部分市场,那么它们也有可能增加福利。关于价格歧视的更广泛的理论文献表明,在消费者的异质性偏好下,企业如何使用非线性价格表来扭曲产品特性,使其偏离有效水平,从而进行价格歧视。此外,理论文献发现,从消费者的角度来看,这种做法是福利减少还是增加取决于许多因素,这意味着从消费者的角度来看,价格歧视的福利含义是一个实证问题。随后,一些最近的实证论文发现,从消费者的角度来看,这种形式的二级价格歧视是福利减少,而其他论文,根据所分析的市场,发现它是福利增加。本文研究了液态奶市场中非线性定价对消费者福利的影响。每盎司边际价格和每盎司边际成本之比在期权菜单上的变化表明,企业正在使用非线性定价表进行价格歧视。一旦这一证据被证明,我使用反事实分析,从消费者的角度来确定这种做法对液态奶市场的福利影响。我发现这个行业内的公司正在使用非线性定价对自有品牌产品进行价格歧视,其中保守估计表明,大约7.20%的尺寸之间的加价差异可以用价格歧视来解释。然而,我发现区域品牌产品的加价很少,大约0.32%,可以归因于价格歧视。在我最引人注目的一组反事实分析中,我表明,由于价格歧视,消费者的情况更糟,我的反事实分析表明,家庭平均支出在0.0249美元到0.0249美元之间。在强制线性定价下,每次购物之旅都会变得更糟,这相当于我的样本区域内每年6300万美元到1.4亿美元之间的总福利差异,这是由于市场上公司使用的非线性定价策略。此外,我估计和利用类似于目前价格歧视文献中的现状模型,这些模型没有包括家庭人口特征,并将它们与我的首选规范进行比较,这表明忽略市场个人的人口构成和实际消费者决策会导致潜在的偏差参数估计。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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