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Third-degree price discrimination, quality choice, and welfare

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  • Ikeda, Takeshi
  • Toshimitsu, Tsuyoshi

Abstract

Employing an endogenous quality choice model, we reconsider the effect on welfare of monopolistic third-degree price discrimination. We prove that price discrimination always enhances welfare, mainly because the quality improvement owing to price discrimination increases consumer surplus. Moreover, we show that third-degree price discrimination benefits all parties, including consumers in the higher priced market if the preference differences between markets are sufficiently large.

Suggested Citation

  • Ikeda, Takeshi & Toshimitsu, Tsuyoshi, 2010. "Third-degree price discrimination, quality choice, and welfare," Economics Letters, Elsevier, vol. 106(1), pages 54-56, January.
    • Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:54-56
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    References listed on IDEAS

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    Cited by:

    1. Takanori Adachi & Noriaki Matsushima, 2014. "The Welfare Effects Of Third-Degree Price Discrimination In A Differentiated Oligopoly," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1231-1244, July.
    2. Tsuyoshi Toshimitsu, 2014. "Economic Integration, Quality Choice, and Monopoly," Discussion Paper Series 118, School of Economics, Kwansei Gakuin University, revised May 2014.
    3. Ioannis N. Pinopoulos, 2020. "Input Price Discrimination and Upstream R&D Investments," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(1), pages 85-106, August.
    4. Hoe Sang Chung, 2020. "Quality choice and behavior-based price discrimination," Journal of Economics, Springer, vol. 131(3), pages 223-236, December.
    5. Jeffrey D. Shulman & Xianjun Geng, 2013. "Add-on Pricing by Asymmetric Firms," Management Science, INFORMS, vol. 59(4), pages 899-917, April.
    6. Torben Klarl, 2018. "Complementarity of willingness to pay and cost heterogeneity under vertical product differentiation: A welfare analysis," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 591-607, August.
    7. Ann Marsden & Hugh Sibly, 2011. "An Integrated Approach to Teaching Price Discrimination," International Review of Economic Education, Economics Network, University of Bristol, vol. 10(2), pages 75-90.
    8. Nguyen, Xuan, 2014. "Monopolistic third-degree price discrimination under vertical product differentiation," Economics Letters, Elsevier, vol. 125(2), pages 153-155.
    9. Francisco Galera & José Luis à lvarez & Juan Carlos Molero, 2012. "Technology Choice and Third Degree Price Discrimination in a Monopoly," Faculty Working Papers 15/12, School of Economics and Business Administration, University of Navarra.
    10. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Quality Differences, Third-Degree Price Discrimination, And Welfare," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 339-351, January.
    11. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Seasonality, price discrimination, and welfare," Journal of Economics, Springer, vol. 120(3), pages 269-277, April.
    12. Matteucci Giorgio & Reverberi Pierfrancesco, 2018. "Uniform Pricing and Product Innovation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-6, January.
    13. Mao, Rui & Liu, Yuhang & Wang, Xiaoxi, 2023. "Economic and environmental impacts of agricultural non-tariff measures: evidence based on ad valorem equivalent estimates," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 26(3), January.
    14. Xuan Nguyen & Chi†Chur Chao & Pasquale Sgro & Munirul Nabin, 2017. "Cross†border Travellers and Parallel Trade: Implications for Asian Economies," The World Economy, Wiley Blackwell, vol. 40(8), pages 1531-1546, August.
    15. Nguyen, Xuan & Chao, Chi-Chur, 2021. "Revenge consumption, product quality, and welfare," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 495-501.
    16. Xingtang Wang & Lin Zhang, 2022. "Monopolistic third-degree price discrimination, welfare, and vertical market structure," Review of Economic Design, Springer;Society for Economic Design, vol. 26(1), pages 75-86, March.

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