Price discrimination with differentiated products: Definition and identification

Abstract

There is no widely accepted definition of price discrimination with differentiated products. Either absolute price-cost differences or percentage price-cost markups are used as benchmarks for comparison. I show that the two criteria are qualitatively different

One may indicate price discrimination when the other does not. Moreover, anything other than marginal cost pricing will be identified as price discrimination by at least one of the two. I propose choosing a criterion based on the cost of arbitrage in the market under examination. Because this is often difficult to determine, it is advisable to always report results with both measures.