Pricing to Heterogeneous Consumers and Firm Market Power: Evidence from the United States and China

25.11.2024 14:15 – 15:30

GTDW@IEE

Jointly with: Mingzhi (Jimmy) Xu, and Yumin Hu

Abstract:

This paper investigates the impact of rising incomeinequality and consumer heterogeneity on firms' prices and markups. We developa model where firms face distinct consumer segments, each with varyingreservation prices-the maximum price they are willing to pay-and differentdemand elasticities. Firms cannot price discriminate across segments. Our modelpredicts two opposing effects on prices, contingent on whether heterogeneityinfluences reservation prices or demand elasticities. Greater dispersion in reservationprices leads to lower prices, whereas increased dispersion in demand elasticityresults in higher prices. These effects manifest differently across the salesdistribution, with heightened consumer heterogeneity resulting in relativelyhigher markups for large firms compared to smaller ones. We empirically testour model's predictions using a detailed dataset from NielsenIQ and Compustatfor the United States, alongside transaction data from the Customs TradeStatistics for China. Our findings indicate that as income inequality rises,prices and markups decrease for smaller firms but increase for larger firms. Wefurther validate our model through additional tests examining the reservationprice and demand elasticity channels.


Short Biography:

Luca Macedoni is an Associate Professor at the Departmentof Economics and Business Economics, Aarhus University, and a research fellowat the Research Centre for Firms and Industry Dynamics (FIND). He holds a PhDin Economics from the University of California, Davis (2017). Luca Macedoni'sresearch focuses on international trade and industrial organization. He hasspecific interests in the effects of regulations in international markets andthe role played by superstar firms and multi-product firms.

Lieu

Bâtiment: Uni Mail

Boulevard du Pont-d'Arve 40
1205 Geneva
Room M 3250, 3rd floor

entrée libre