Toggle Mobile Menu
Academic Programs

Regulators occasionally impose legal restrictions that prevent firms from unfairly price discriminating against particular groups of people. Although some household that consume the good may benefit, if the firm responds by reducing the availability of the good, other households may lose from reduced access. This paper explores this tradeoff in the context of geographic price discrimination. I build a spatial model with multi-region firms and households with heterogeneous preferences for a differentiated product. Prices are connected to the sorting patterns of firms under uniform pricing, but not under flexible pricing. Conversely, under uniform pricing, firms’ geographic location decisions relative to flexible pricing are driven by differences in equilibrium markups. I decompose the welfare effects of moving from flexible to uniform pricing into an intensive margin component that captures changes in prices and an extensive margin component that captures firms’ geographic adjustments and show how the dominant effect depends on a given household’s demand elasticity. I apply my framework to the life insurance industry, where anti-discrimination laws prevent life insurers from pricing at the geographic level. I use a novel data set on the geographic locations of insurers’ sales agents and insurer pricing quotes to estimate the model for low- and high-income households and the cross section of life insurance companies. I find that low-income households have lower demand elasticities than high-income households and are therefore relatively more sensitive to extensive margin effects. I use the model-implied welfare decomposition to quantify the welfare effects of imposing uniform pricing restrictions and show that intensive margin welfare gains may be completely offset by insurers’ extensive margin responses.