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

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Author Info

  • 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.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 4 (Winter)
Pages: 762-776

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Handle: RePEc:rje:randje:v:35:y:2004:4:p:762-776

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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;

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References

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  1. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
  2. Bergemann, Dirk & Valimaki, Juuso, 2003. "Dynamic common agency," Journal of Economic Theory, Elsevier, vol. 111(1), pages 23-48, July.
  3. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  4. Stuart, Harborne Jr., 2004. "Efficient spatial competition," Games and Economic Behavior, Elsevier, vol. 49(2), pages 345-362, November.
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Cited by:
  1. Weeds, Helen, 2012. "Superstars and the long tail: The impact of technology on market structure in media industries," Information Economics and Policy, Elsevier, vol. 24(1), pages 60-68.
  2. Jerome Adda & Samuel Berlinski & V. Bhaskar & Stephen Machin, 2011. "Market Regulation and Firm Performance: The Case of Smoking Bans in the UK," Economics Working Papers ECO2011/09, European University Institute.
  3. Degryse, Hans & Laeven, Luc & Ongena, Steven, 2007. "The Impact of Organizational Structure and Lending Technology on Banking Competition," CEPR Discussion Papers 6412, C.E.P.R. Discussion Papers.
  4. Chiesa, Gabriella & Denicolò, Vincenzo, 2012. "Competition in non-linear pricing, market concentration and mergers," Economics Letters, Elsevier, vol. 117(2), pages 414-417.
  5. Konishi, Yoshifumi, 2011. "Efficiency properties of binary ecolabeling," Resource and Energy Economics, Elsevier, vol. 33(4), pages 798-819.
  6. Leeson, Peter T. & Sobel, Russell S., 2008. "Costly price discrimination," Economics Letters, Elsevier, vol. 99(1), pages 206-208, April.
  7. Gregory M Randolph, 2012. "Price Discrimination with Producer & Consumer Transaction Costs," Economics Bulletin, AccessEcon, vol. 32(1), pages 370-375.
  8. Myrna Wooders & Ben Zissimos, 2003. "Hotelling Tax Competition," CESifo Working Paper Series 932, CESifo Group Munich.
  9. Chiesa, Gabriella & Denicolò, Vincenzo, 2009. "Trading with a common agent under complete information: A characterization of Nash equilibria," Journal of Economic Theory, Elsevier, vol. 144(1), pages 296-311, January.
  10. Mark Armstrong, 2005. "Recent Developments in the Economics of Price Discrimination," Industrial Organization 0511004, EconWPA.

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