Discriminating against Captive Customers
American Economic Review: Insights
no. 3, December 2019
We analyze a market where some consumers only consider buying from a specific seller while other consumers choose the best deal from several sellers. When sellers are able to discriminate against their captive customers, we show that discrimination harms consumers in aggregate relative to the situation with uniform pricing when sellers are approximately symmetric, while the practice tends to benefit consumers in sufficiently asymmetric markets. We also show how the asymmetry of markets may be affected by the information that firms have on consumer captivity.
Armstrong, Mark, and John Vickers.
"Discriminating against Captive Customers."
American Economic Review: Insights,
Consumer Economics: Theory
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Oligopoly and Other Imperfect Markets