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American Economic Review: Vol. 103 No. 7 (December 2013)

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Intertemporal Price Discrimination in Storable Goods Markets

Article Citation

Hendel, Igal, and Aviv Nevo. 2013. "Intertemporal Price Discrimination in Storable Goods Markets." American Economic Review, 103(7): 2722-51.

DOI: 10.1257/aer.103.7.2722

Abstract

We study intertemporal price discrimination when consumers can store for future consumption needs. We offer a simple model of demand dynamics, which we estimate using market-level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who stockpile for future consumption, and less price-sensitive consumers, who do not stockpile. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales (i) capture 25-30 percent of the gap between non-discriminatory profits and (unattainable) third-degree price discrimination profits, (ii) increase total welfare, and (iii) have a modest impact on consumer welfare.

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Authors

Hendel, Igal (Northwestern U)
Nevo, Aviv (Northwestern U)

JEL Classifications

D11: Consumer Economics: Theory
D12: Consumer Economics: Empirical Analysis
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L12: Monopoly; Monopolization Strategies
L81: Retail and Wholesale Trade; e-Commerce


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