TY - JOUR

T1 - Gainers and Losers in Priority Services

AU - Gershkov, Alex

AU - Winter, Eyal

PY - 2023/11/30

Y1 - 2023/11/30

N2 - We analyze the implications of priority service (PS) on customers’ welfare. In monopoly markets, PS can often decrease consumer surplus and can even yield a loss of welfare to all consumers. This happens despite its efficiency gains, as monopolists levy in revenue more than the total efficiency gains. PS can increase consumer surplus if it expands the consumption coverage—that is, if it introduces new customers who would not purchase the service otherwise. In duopoly markets, the price competition over PS can be severely eroded. Under homogeneity, firms act as if they were monopolists serving half of the market.

AB - We analyze the implications of priority service (PS) on customers’ welfare. In monopoly markets, PS can often decrease consumer surplus and can even yield a loss of welfare to all consumers. This happens despite its efficiency gains, as monopolists levy in revenue more than the total efficiency gains. PS can increase consumer surplus if it expands the consumption coverage—that is, if it introduces new customers who would not purchase the service otherwise. In duopoly markets, the price competition over PS can be severely eroded. Under homogeneity, firms act as if they were monopolists serving half of the market.

KW - Economics and Econometrics

U2 - 10.1086/724850

DO - 10.1086/724850

M3 - Journal article

VL - 131

SP - 3103

EP - 3155

JO - Journal of Political Economy

JF - Journal of Political Economy

SN - 0022-3808

IS - 11

ER -