We study how changes in market structure affect how firms engage in second-degree price discrimination. Specifically, we study how a large incumbent cable firm changes its menu of price-quality offerings and mixed bundles in response to entry. Competition strongly decreases the rate at which prices increase in quality and induces the incumbent to introduce additional medium- to high-quality offerings that the incumbent could have introduced absent competition but chose not to. Our findings are relevant for the broadband industry because they suggest that competition can improve broadband quality through direct pricing effects without any changes in investment in maximum quality.
Boik, Andre, and Hidenori Takahashi.
"Fighting Bundles: The Effects of Competition on Second-Degree Price Discrimination."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Firm Behavior: Empirical Analysis
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Oligopoly and Other Imperfect Markets
Vertical Restraints; Resale Price Maintenance; Quantity Discounts