ESSAYS ON PRICE DISCRIMINATION

Abstract

This study answers two questions brought by internet technology improvement in industrial organization literature. The first essay, "Customer Poaching, Coupon Trading and Consumer Arbitrage", relaxes the no consumer arbitrage assumption and studies the impacts of coupon trading on equilibrium prices, promotion intensities (frequency and depth) and profits. The results show that: (i) firms never have incentive to distribute defensive coupons; (ii) a larger fraction of coupon traders among consumers or higher distribution costs reduce the attractiveness of couponing, and firms respond by lowering their (offensive) promotion frequency and depth; (iii) when the cost of distributing coupons increases, firms respond by sending fewer offensive coupons, but of higher face value; (iv) increase in the fraction of coupon traders and increase in coupon distribution cost both lead to higher equilibrium prices and profits.

The second essay, "Post-Sale Low Price Guarantee and Price Fluctuation", explains the cyclical price fluctuation by the combination of firm's self post-sale low price guarantees and its intertemporal pricing policy. An empirical analysis based on weekly price data from Best Buy and Circuit City shows that there is a negative relationship between each firm's current price change and its previous price change. This is consistent with my theory that firms may use an intertemporal pricing policy that causes price fluctuation over time comparing to the existing literature that usually predicts a monotonic price decreasing over time.