Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279202 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10453
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
I consider a market with two firms, a minority group of customers, and a bigoted (racist, ethnocentric, xenophobic, or sexist) majority group of customers. There exists a Nash equilibrium with full segregation in which a low-price firm serves only the minority and a high-price firm serves only the majority. There is also a partial-integration equilibrium in which a high-price firm serves only the majority while a low-price firm serves both the minority and majority. Paradoxically, if the minority group is sufficiently big and the majority is sufficiently prejudiced, then both equilibria hold in the sense that the high-price firm does not lose customers, although its competitor charges a lower price. If the firms can price discriminate, none of these equilibria will hold. The partial integration equilibrium depends on how the prejudice of the majority is modelled.
Subjects: 
customer discrimination
majority
markets
minority
segregation
JEL: 
J15
Document Type: 
Working Paper
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