DP12034 Intertemporal Price Discrimination with Two Products

Author(s): Jean-Charles Rochet, John Thanassoulis
Publication Date: May 2017
Date Revised: May 2019
Keyword(s): Bundling, Cross-sell, Multidimensional Mechanism Design, second degree price discrimination, Substitutes and Complements, Time Discounting
JEL(s): D42, L11
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12034

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.