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A dynamic model for price discrimination with asymmetric cross-price elasticities: A case study on the pricing behavior of the economics journals
Abstract
The traditional single-period price discrimination model, focused on only one market and/or symmetrically related markets, inadequately demonstrates pricing in more complicated markets. Economics journals, for example, experience frequent price discrimination. Yet uncertainty about quality, library budget pressures, asymmetric cross-price elasticities and another factors make the standard model inapplicable. We create an infinite-period model to explain differential prices across individual and library subscribers. Each group is seen as operating along a unique kinked demand curve. By specifying two convergent confidence and reservation functions, the infinite-period model shrinks to a finite-period model. Out of this we find that a strategy has prices jumping to follow shifted-up demand curves is optimal among all feasible pricing strategies. Predicted results of the pricing strategy for individual subscribers are that prices and outputs rise while the price elasticity falls. For libraries, prices and elasticities rise while output falls. When controlling for quality, the rates of growth in both prices are inversely related to quality. In the empirical study, the prediction that the growth rate in price for library subscriptions is higher than for individual subscriptions is supported for many of journals considered. In the cross-journal study, no matter based upon the coefficient estimates or the differentials of price growth rates, the finding that the difference of price growth rates is smaller for high quality journal than for low quality journal is supported generally, but not statistically significant. By imposing restrictions on data set, the growth rates differentials have positive and significant correlation with each of the five quality rankings. In summary, journal quality may not be a key element for private subscribers, and inter-library loan and budgetary constraint may force low quality journals to slow down the price growth rate of library subscriptions. Over time, the high quality journal will earn more market power to have closer price growth rates between individual and library subscriptions than that of the low quality journal has.
Subject Area
Economic theory|Mass media|Business costs
Recommended Citation
Wu, Wei-Ming, "A dynamic model for price discrimination with asymmetric cross-price elasticities: A case study on the pricing behavior of the economics journals" (1996). ETD collection for University of Nebraska-Lincoln. AAI9712532.
https://digitalcommons.unl.edu/dissertations/AAI9712532