DP7315 A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market

Author(s): Kathryn Graddy, George Hall
Publication Date: June 2009
Keyword(s): dynamic programming, fish, indirect inference, price discrimination, yield management
JEL(s): C15, D21, D4, L1, L81
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7315

We estimate a dynamic profit-maximization model of a fish wholesaler who can observe consumer characteristics, set individual prices, and thus engage in third-degree price discrimination. Simulated prices and quantities from the model exhibit the key features observed in a set of high quality transaction-level data on fish sales collected at the Fulton fish market. The model’s predictions are then compared to the case in which the dealer must post a single price to all customers. We find the cost to the dealer of posting a uniform price to be extremely small.