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Price discrimination in selection markets

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Title: Price discrimination in selection markets
Authors: Veiga, AF
Item 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.
Date of Acceptance: 13-Mar-2023
URI: http://hdl.handle.net/10044/1/103497
DOI: 10.1162/rest_a_01330
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.
Publication Status: Published online
Online Publication Date: 2023-04-12
Appears in Collections:Imperial College Business School