Empirical essays on price discrimination and market segmentation

This dissertation consists of three empirical essays on issues related to second degree price discrimination. This form of price discrimination occurs when firms offer a menu of vertically differentiated products for the purpose of market segmentation. Examples of second degree price discrimination are observed in the pricing of cellular calling plans with different minutes, soft drinks in various bottle sizes, and airline travel across different classes.; The first essay of the dissertation investigates the role of promotion mechanisms for managing product cannibalization. The focus is on the effects of image advertising and individually targeted coupon promotions on cannibalization between a firm's products. The analysis finds evidence that advertising of the lower quality product exacerbates product cannibalization. Targeted promotions can be used as a mechanism to manage product cannibalization. However, evidence of wear-out effects from the excessive use of coupons indicates that the use of these promotions should be moderated.; The focus of the second essay is on the contribution to retailer profitability from two price discrimination mechanisms: quantity discounts based on package size (second degree price discrimination), and micromarketing or store-level pricing (third degree price discrimination). The analysis shows that the ability to engage in second degree price discrimination contributes more to retailer profitability than third degree price discrimination.; The third essay investigates the impact of competition on the shape of the non-linear price schedule. Although increased competition is expected to reduce prices, the reductions may not be uniform across all sizes. Using different underlying assumptions about the relationship between brand and size preferences, theoretical models have made conflicting predictions about the impact of competition on non-linear prices. The analysis finds no evidence of a systematic correlation between brand and size preferences. The results show that increased competition results in proportionally greater price declines for the larger size.