An Empirical Analysis of Competitive Nonlinear Pricing

We empirically analyze a market with competitive non-linear pricing and multidimensional private information. We apply the method to a novel data set on Yellow Pages advertisements in Central Pennsylvania, U.S. First, we... [ view full abstract ]

We empirically analyze a market with competitive non-linear pricing and multidimensional private information. We apply the method to a novel data set on Yellow Pages advertisements in Central Pennsylvania, U.S. First, we study the identification of the joint density of consumer preferences for the two directories, the marginal costs of printing, and common utility parameters. Since the data do not contain any other information about consumer characteristics, we rely on supply side optimality conditions to identify the model parameters. Second, we estimate the joint density of consumer preferences using Joe copula, and the cost and utility parameters using a nonlinear least squares method. Using the estimates in a counterfactual exercise we find evidence of asymmetric information with substantial heterogeneity among consumers, and estimate the welfare loss due to asymmetric information to be approximately 3.8% of the total sales