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Unpublished Paper
When the Weak Become Weaker: The Effect of Market Power on Third Degree Price Discrimination
  • Juliette Caminade, University of Chicago
  • John A List, University of Chicago
  • Jeffrey A Livingston
  • Jeffrey Picel, Harvard University

This study begins by exploring theoretically the relationship between market power and statistical price discrimination in a stylized bargaining setting. Most importantly, our theory predicts that market power accentuates the level of statistical discrimination in this setting. We test our theory using a natural field experiment that gains identification by taking advantage of a rare event in the memorabilia market—a good with an obscenity printed on it was mistakenly released into the marketplace. We find evidence consonant with the theoretical model: the degree of statistical discrimination is increasing in the level of market power. In this spirit, market power serves to considerably weaken those agents who are already at a competitive disadvantage in the market. As a robustness test, we show the absence of such effects on the customer-side, even though customer-side discrimination is more intense than seller-side discrimination. These empirical results are important in not only a positive and normative sense, but also have clear policy implications.

Publication Date
Citation Information
Juliette Caminade, John A List, Jeffrey A Livingston and Jeffrey Picel. "When the Weak Become Weaker: The Effect of Market Power on Third Degree Price Discrimination" (2014)
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