Regulation of price discrimination in the transportation market under duopoly competition

Abstract

With significant advancements in platform economy and big data technologies, service providers can implement highly targeted discriminatory pricing strategies, as exemplified by charging different prices to fresh and frequent customers for identical products. This practice raises significant concerns about fairness and consumer protection. Motivated by these real-world observations, we develop a two-period pricing competition model. Our model simulates a scenario where two heterogeneous suppliers initially compete on price to attract customers in period 1. In period 2, they attempt to attract wait-and-see customers by offering lower prices for their remaining resources. A Hotelling framework accounting for customer heterogeneity and supply–demand congestion effects is used to capture customers’ strategic decision-making process and integrate the two separate periods. To regulate price discrimination, a price equity constraint is imposed at the beginning of period 2 to narrow the price gap between existing and wait-and-see customers. To quantify the impact of this regulation, we conduct a numerical study using car parking data from Hong Kong, examining changes in consumer surplus and social welfare. Our findings reveal that an appropriate level of equity regulation can incentivize customers to switch from advantaged to disadvantaged suppliers, fostering a more competitive market and mitigating the risk of monopolies. Conversely, excessively stringent price equity regulations can have unintended negative consequences, potentially diminishing overall social welfare.