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The cost effect in third-degree price discrimination

Author

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  • Francisco Galera
  • Markus Kinateder
  • Pedro Mendi

Abstract

In the presence of a non-constant marginal cost and demand uncertainty, we show that an output increase is no longer a necessary condition for welfare to increase following the introduction of third-degree price discrimination. We thus highlight the existence of an effect that might offset the well known output and misallocation effects of price discrimination. We propose a specific example where this is indeed the case. Copyright Springer-Verlag Wien 2014

Suggested Citation

  • Francisco Galera & Markus Kinateder & Pedro Mendi, 2014. "The cost effect in third-degree price discrimination," Journal of Economics, Springer, vol. 113(2), pages 175-186, October.
    • Handle: RePEc:kap:jeczfn:v:113:y:2014:i:2:p:175-186
    DOI: 10.1007/s00712-013-0368-y
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    References listed on IDEAS

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    1. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    2. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-1262, December.
    3. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    4. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    5. Anam, Mahmudul & Chiang, Shin-Hwan, 2006. "Price discrimination and social welfare with correlated demand," Journal of Economic Behavior & Organization, Elsevier, vol. 61(1), pages 110-122, September.
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    Citations

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    Cited by:

    1. 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.
    2. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Seasonality, price discrimination, and welfare," Journal of Economics, Springer, vol. 120(3), pages 269-277, April.
    3. Francisco Galera & Pedro Garcia-del-Barrio & Pedro Mendi, 2019. "Consumer surplus bias and the welfare effects of price discrimination," Journal of Regulatory Economics, Springer, vol. 55(1), pages 33-45, February.
    4. Tang, Yao & Chen, Rachel R. & Guan, Xu, 2021. "Daily-deal market with consumer retention: Price discrimination or quality differentiation," Omega, Elsevier, vol. 102(C).
    5. Gyódi Kristóf & Sobolewski Maciej & Ziembiński Michał, 2017. "What Drives Price Dispersion in the European E-commerce Industry?," Central European Economic Journal, Sciendo, vol. 3(50), pages 53-71, December.

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    More about this item

    Keywords

    Monopoly; Third-degree price discrimination; Uncertainty ; Welfare; Cost effect; D42; L12; D81;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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