When Price Discrimination Fails - A Principal Agent Problem with Social Influence

Managerial and Decision Economics, 2015, DOI: 10.1002/mde.2770

Posted: 25 Feb 2015 Last revised: 13 Apr 2018

See all articles by Vlad Radoias

Vlad Radoias

Sam Houston State University - College of Business Administration

Date Written: February 23, 2015

Abstract

I develop a theoretical model of price discrimination under social influence. I find that social influence gives sellers the incentive to artificially create and maintain excess demand on the market. The rationing occurs mainly at the low end of the market, and sometimes results in full rationing of the low end. Furthermore, the incidence of price discrimination under social influence is much lower than in the absence of it. Social influence lowers the profitability of price discrimination and incentivizes sellers to reduce product variety and to only target the high end of the market, a fact that is consistent with many empirical observations.

Keywords: Social Influence; Excess Demand; Price Discrimination

Suggested Citation

Radoias, Vlad, When Price Discrimination Fails - A Principal Agent Problem with Social Influence (February 23, 2015). Managerial and Decision Economics, 2015, DOI: 10.1002/mde.2770, Available at SSRN: https://ssrn.com/abstract=2568666 or http://dx.doi.org/10.2139/ssrn.2568666

Vlad Radoias (Contact Author)

Sam Houston State University - College of Business Administration ( email )

1803 Ave I
Huntsville, TX 77341
United States

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