Price discrimination in selection markets
File(s)JMP_v25.pdf (1.53 MB)
Accepted version
Author(s)
Veiga, Andre Filipe
Type
Journal Article
Abstract
Should insurance prices vary with age? I consider competitive markets
for lemons where a signal (e.g., age) partitions consumers (e.g., young and
old). I study the continuum of policies from zero price-discrimination (zeroPD, equal prices) to full-PD (no restrictions). Restricting PD can increases
welfare if high-cost markets exhibit greater adverse selection, or when the
high-cost market “unravels.” I characterize optimal PD, and show how it is
affected by changes in cost. In a calibration, optimal PD increases welfare
by about $30/person-year. I extend the model to arbitrary signal structures,
behavioral consumers, a monopolized industry, and multi-product firms.
for lemons where a signal (e.g., age) partitions consumers (e.g., young and
old). I study the continuum of policies from zero price-discrimination (zeroPD, equal prices) to full-PD (no restrictions). Restricting PD can increases
welfare if high-cost markets exhibit greater adverse selection, or when the
high-cost market “unravels.” I characterize optimal PD, and show how it is
affected by changes in cost. In a calibration, optimal PD increases welfare
by about $30/person-year. I extend the model to arbitrary signal structures,
behavioral consumers, a monopolized industry, and multi-product firms.
Date Acceptance
2023-03-13
Citation
The Review of Economics and Statistics
ISSN
0034-6535
Publisher
Massachusetts Institute of Technology Press
Journal / Book Title
The Review of Economics and Statistics
Copyright Statement
© 2023 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. This is the author’s final version, accepted for publication in The Review of Economics and Statistics.
Identifier
https://direct.mit.edu/rest/article/doi/10.1162/rest_a_01330/115635
Publication Status
Published online
Date Publish Online
2023-04-12