Marketing Papers
Document Type
Technical Report
Date of this Version
2-2014
Abstract
The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits and is mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the implications of this policy. We find that failure to account for the correlation between demographics and consumption patterns leads to lower prices than those charged by a profit-maximizing, multi-product monopolist. Using product-specific markups leads to higher prices on average, less quantity consumed, an 11% increase in total profits, and greater welfare. The current one-size-fits-all pricing rule ignores variations in demand elasticities resulting in the implicit taxation of high-income and educated households by raising the prices of spirits they prefer (vodka and whiskey) while lowering the price of products favored by low-income and minority households (gin and rum).
Keywords
multi-product price discrimination, complex pricing, taxation by regulation
Recommended Citation
Miravete, E. J., Seim, K., & Thurk, J. (2014). Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing. Retrieved from https://repository.upenn.edu/marketing_papers/354
Included in
Business Administration, Management, and Operations Commons, Business Analytics Commons, Management Sciences and Quantitative Methods Commons, Marketing Commons, Other Public Affairs, Public Policy and Public Administration Commons, Policy Design, Analysis, and Evaluation Commons, Sales and Merchandising Commons, Taxation Commons
Date Posted: 15 June 2018
Comments
This is an unpublished manuscript.