INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD INDIA Brand Effect and Price Discrimination in the Video Rental Industry Viswanath Pingali W.P. No. 2012-07-04 July 2012 The main objective of the working paper series of the IIMA is to help faculty members, research staff and doctoral students to speedily share their research findings with professional colleagues and test their research findings at the pre-publication stage. IIMA is committed to maintain academic freedom. The opinion(s), view(s) and conclusion(s) expressed in the working paper are those of the authors and not that of IIMA. INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD-380 015 INDIA IIMA INDIA Research and Publications Brand Effect and Price Discrimination in the Video Rental Industry Viswanath Pingali * Assistant Professor, Indian Institute of Management Ahmedabad Email:
[email protected] Abstract What is the effect of competition on prices in a market where the product is offered at different quality levels? Would the increase in competition reduce the price of high quality good more than the low quality good? These are the questions examined in this paper in the context of the video rental industry. Videos can be classified into DVD and VHS. Firms can also be categorized as branded stores that belong to a major chain and unbranded stores that do not belong to any major national chain. As competition increases prices of both DVD and VHS should decrease, but in theory it is not clear which one will decrease more. Moreover branded and unbranded stores may respond differently to the change in competition. My empirical results indicate that as competition increases, (a) for branded stores, the price of the high quality good (DVD) falls more than that of the low quality good (VHS), (b) for unbranded stores, we observe the opposite effect.