Recent Developments in the Economics of Price Discrimination

This paper selectively surveys the recent literature on price discrimination. The focus \nis on three aspects of pricing decisions: the information about customers available \nto firms; the instruments firms can use in the design of their tariffs; and the ability of \nfirms to commit to their pricing plans. Developments in marketing technology mean \nthat firms often have access to more information about individual customers than was \npreviously the case. The use of this information might be restricted by public policy \ntowards customer privacy. Where it is not restricted, firms may be unable to commit \nto the use they make of the information. With monopoly supply, an increased ability \nto engage in price discrimination will boost profit unless the firm cannot commit \nto its pricing policy. With competition, the effects of price discrimination on profit, \nconsumer surplus and overall welfare depend on the kinds of information and/or instruments \navailable to firms. The paper investigates the circumstances in which price \ndiscrimination causes all prices (and hence profit) to fall.