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Third‐Degree Price Discrimination With Interdependent Demands

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  • Stephen K. Layson

Abstract

This paper analyzes the price, output, and welfare effects of third‐degree price discrimination for a monopolist who sells in two interdependent markets. The case where the two goods sold by the monopolist are complements is analyzed as well as the more typical case where the two goods are substitutes. The economic effects of price discrimination are shown to depend on the type and strength of demand interdependence, the curvature of the demands and the slope of marginal cost. The circumstances under which price discrimination causes both market prices to either rise or fall are also analyzed.

Suggested Citation

  • Stephen K. Layson, 1998. "Third‐Degree Price Discrimination With Interdependent Demands," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 511-524, December.
    • Handle: RePEc:bla:jindec:v:46:y:1998:i:4:p:511-524
    DOI: 10.1111/1467-6451.00085
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    Cited by:

    1. Mahmudul Anam & Shin-Hwan Chiangy, 1999. "Price Discrimination and Social Welfare with Demand Uncertainty," Working Papers 1999_04, York University, Department of Economics.
    2. Yongmin Chen & Marius Schwartz, 2015. "Differential pricing when costs differ: a welfare analysis," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 442-460, June.
    3. Chen, Yongmin & Schwartz, Marius, 2012. "Beyond price discrimination: welfare under differential pricing when costs also differ," MPRA Paper 43393, University Library of Munich, Germany.
    4. Achim I. Czerny & Anming Zhang, 2014. "Third-degree Price Discrimination in the Presence of Congestion Externality," Tinbergen Institute Discussion Papers 14-140/VIII, Tinbergen Institute.

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