2025/07/17 by Soheil Ghili, K. Sudhir, Ghili, Soheil +5
Business, Management and Accounting · Decision Sciences · Economics, Econometrics and Finance · #Auction Theory and Applications #Consumer Market Behavior and Pricing #FOS: Economics and business #General Economics (econ.GN) #Merger and Competition Analysis
paper · pdf · doi:10.48550/arxiv.2507.13426
openalex publication_date 2025/07/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We build on theoretical results from the mechanism design literature to analyze empirical models of second-degree price discrimination (2PD). We show that for a random-coefficients discrete choice ("BLP") model to be suitable for studying 2PD, it must capture the covariance between two key random effects: (i) the "baseline" willingness to pay (affecting all product versions), and (ii) the perceived differentiation between versions. We then develop an experimental design that, among other features, identifies this covariance under common data constraints in 2PD environments. We implement this experiment in the field in collaboration with an international airline. Estimating the theoretically motivated empirical model on the experimental data, we demonstrate its applicability to 2PD decisions. We also show that test statistics from our design can enable qualitative inference on optimal 2PD policy even before estimating a demand model. Our methodology applies broadly across second-degree price discrimination settings.