Periodic Reporting for period 2 - PRIDISP (Understanding price dispersion: new structural models of price discrimination and applications)
Reporting period: 2022-03-01 to 2023-08-31
In Project 2, we analyze two frameworks with third-degree price discrimination and some arbitrage opportunities. The first framework is the European car market which is partially integrated. Despite the free movement of goods, car prices differ across markets. Consumers can arbitrage and buy the car in a foreign country and import it, but it is costly. We develop a new structural model of demand and supply to represent partially integrated new car markets in the European Union. The second framework we consider is the car dealing industry in the presence of e-commerce. Consumers buy more and more often online, and we want to predict how online purchases will modify the automobile industry. The main effect of online purchases is that it limits the ability of car dealers to price discriminate through individualized discounts. However, the online channel reduces the consumer shopping costs of visiting physical car dealers.
In a third project, we examine the welfare impacts of price discrimination based on past purchase history. More precisely, we evaluate how beneficial this price discrimination is for firms and the distributional consequences for consumers. First, we relate profitability and consumer surplus gains and losses to the market characteristics using numerical simulations: competition intensity, preference heterogeneity, frequency of purchase opportunity, product differentiation, etc. Then, we apply this framework to food expenses and predict the consequences of targeted prices for individual expenditures and firms’ profits.
In the fourth project, we are interested in spatial heterogeneity and its consequences for prices and regulations. In the working paper “The Welfare Consequences of Urban Traffic Regulations” (joint with Nicolás Martínez), we develop a novel structural model of transportation mode choice where an individual car trip duration is endogenous and determined by the traffic conditions along the itinerary. Traffic conditions depend on how many individuals decide to drive and their itineraries. Our model accounts for the heterogeneous trip characteristics and value of travel time across individuals and allows the welfare consequences of different hypothetical urban traffic regulations.
In a second subproject, we are interested in estimating local demands for gasoline and diesel in France to quantify the distributional consequences of a rise in fuel costs. We develop a novel estimation method to estimate heterogeneous demand across the territory.
We also expect to shed light and get quantitative evaluations of several policy-relevant and societal questions. What are the effects of raising oil prices? Who suffers the most, and how can a regulator mitigate the severe consequences on the most vulnerable population? Do firms that collect information about individual purchases through loyalty programs have the incentive to use this information and price discriminate? What would be the consequences for consumer expenses and firms’ profits? What happens to car prices if consumers can buy online? Who gains the most from this new purchase channel among consumers and firms? What are the consequences of market integration for the effects of national environmental regulations? Finally, we expect to develop new methods to estimate demand and supply and test some assumptions of these structural models.