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

Author

Listed:
  • V. Bhaskar

    (University of Essex)

  • Ted To

    (Bureau of Labor Statistics)

Abstract

We analyze models of product differentiation with perfect price discrimination and free entry. With a fixed number of firms, and in the absence of coordination failures, perfect price discrimination provides incentives for firms to choose product characteristics in a socially optimal way. However, with free entry, the number of firms is always excessive. Our results apply to a large class of models of product differentiation. They also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of the principals.

Suggested Citation

  • V. Bhaskar & Ted To, 2004. "Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 762-776, Winter.
    • Handle: RePEc:rje:randje:v:35:y:2004:4:p:762-776
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Production; Pricing; and Market Structure; Size Distribution of Firms (Concentration; Product Differentiation; Entry and Exit) Market Structure; Firm Strategy; and Market Performance: Oligopoly and Other Imperfect Markets; monopolistic competition; contestable markets Differentiation; Entry; Firm; Firms; Free Entry; Price Discrimination; Product Differentiation;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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