Competition and Price Discrimination in Yellow Pages Advertising

This paper examines the effect of competition on second degree price discrimination in display advertising in Yellow Page directories. Recent theoretical work makes conflicting predictions about the effect of competition on curvature. Our main empirical finding is that competition increases the curvature of the price schedule, meaning that purchasers of the largest ads see their prices fall the most in response to competition. We also present evidence of menu costs in adjusting pricing schedules and address this issue in estimation. The magnitudes that we find could be relevant for welfare calculations in the face of price discrimination.