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Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria

Author

Listed:
  • V. Bhaskar

    (University of Essex, Wivenhoe)

  • Ted To

    (Bureau of Labor Statistics)

Abstract

We analyze models of product differentiation with perfect price discrimination and free entry. Although perfect price discrimination ensures efficient output decisions given product characteristics, coordination failures may prevent efficiency in the choice of product characteristics. More fundamentally, even if we have efficient product choices for a fixed number of firms, one always has excessive entry in free entry equilibrium. Our results apply to a large class of models of product differentiation including location models as well as representative consumer models of the demand for variety. These results also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of lobbyists.

Suggested Citation

  • V. Bhaskar & Ted To, 2000. "Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria," Industrial Organization 0004011, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0004011
    Note: Type of Document - LaTeX; prepared on IBM PC - PC-TEX; to print on any; pages: 22 + title
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    References listed on IDEAS

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    Cited by:

    1. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
    2. Stuart, Harborne Jr., 2004. "Efficient spatial competition," Games and Economic Behavior, Elsevier, vol. 49(2), pages 345-362, November.

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    More about this item

    Keywords

    price discrimination; efficiency; free entry; product differentiation;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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