Stephen Shugan  (Warrington College of Business - University of Florida)

"The Effect of Competition on Marketing Practices of Price Discrimination"

ABSTRACT
Past research examines how competition changes marketing practices by comparing different products from different firms in different markets. Our approach combines case-control with seasonality creating a natural experiment for examining how competition changes marketing practice. We show when peak prices exceed off-peak prices, competition increases in offpeak seasons because prices approach marginal cost. Our approach contributes to the debate regarding whether competition changes marketing practices exploiting price discrimination (PD). Perfect competition eliminates these practices. However, competition is never perfect. Moreover, rival theories (fairness concerns, abandoning price-sensitive switchers, imperfect competition, etc.) make conflicting predictions. We pair identical hotel rooms within and between seasons. By definition, deviations from identical prices for paired rooms in the same season are PD. We find competition decreases PD practices. Hence, PD techniques (e.g., yield management and nonlinear pricing) may be less effective in more competitive markets (e.g., off-peak). Moreover, competition seems to hinder PD more at more popular locations, chain branded hotels, highquality hotels, business and smaller hotels. Greater heterogeneity increases the prevalence of PD.