Discussion Paper Details

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Title: Intertemporal Price Discrimination with Two Products

Author(s): Jean-Charles Rochet and John Thanassoulis

Publication Date: May 2017

Keyword(s): Bundling, Cross-sell, Multidimensional Mechanism Design, second degree price discrimination, Substitutes and Complements and Time Discounting

Programme Area(s): Industrial Organization

Abstract: We study the two-product monopoly profit maximisation problem for a seller who can commit to a dynamic pricing strategy. We show that if consumers' valuations are not strongly-ordered then optimality for the seller can require intertemporal price discrimination: the seller offers a choice between supplying a complete bundle now, or delaying the supply of a component of that bundle until a later date. For general valuations we establish a sufficient condition for such dynamic pricing to be more profitable than mixed bundling. So we show that the Stokey (1979) no-discrimination-across-time result does not extend to two-product sellers when consumers' valuations are drawn from many standard distributions.

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Bibliographic Reference

Rochet, J and Thanassoulis, J. 2017. 'Intertemporal Price Discrimination with Two Products'. London, Centre for Economic Policy Research.