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Imperfect price discrimination, market structure, and efficiency

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  • Qihong Liu
  • Konstantinos Serfes

Abstract

We introduce a flexible third-degree price discrimination framework by modeling the information firms possess about consumers' locations (preferences) on the Salop circle as a partition. Higher information quality is translated into a partition refinement. In the limit, we obtain the perfect price discrimination paradigm. We show that the free-entry equilibrium number of firms exhibits a U-shape as a function of the quality of information. This implies that price discrimination generates the most efficient free-entry outcome.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 4 (November)
Pages: 1191-1203

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Handle: RePEc:cje:issued:v:38:y:2005:i:4:p:1191-1203

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Cited by:
  1. Marco Alderighi & Claudio A. Piga, 2008. "The Circular City with Heterogeneous Firms," Discussion Paper Series 2008_03, Department of Economics, Loughborough University, revised Jul 2008.
  2. Jan Bouckaert & Hans Degryse, 2006. "Opt In Versus Opt Out: A Free-Entry Analysis of Privacy Policies," CESifo Working Paper Series 1831, CESifo Group Munich.
  3. Fatemi, Farshad, 2010. "Information Acquisition and Price Discrimination," MPRA Paper 20399, University Library of Munich, Germany.
  4. Liu, Qihong & Serfes, Konstantinos, 2007. "Market segmentation and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 355-378, April.

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