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Does Third Degree Price Discrimination Reduce Social Welfare?

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  • Debashis Pal
  • Victor Kaftal

Abstract

We analyze the welfare impact of monopolistic third degree price discrimination when all markets are not necessarily served by uniform pricing. We consider n markets with linear demand curves. Each demand is characterized by the price intercept of the demand curve and by the size of the market as measured by the area under the demand curve. Based on these two exogenous parameters, we (i) establish the necessary and su¢ cient conditions to determine the number of markets to be served under uniform pricing, (ii) derive the necessary and su¢ cient conditions to determine the direction of the welfare change under third degree price discrimination, (iii) determine minimally su¢ cient conditions for all markets being served under uniform pricing, involving either the market sizes or the price intercepts of demands alone, and (iv) derive minimally su¢ cient conditions, involving market sizes alone, for third degree price discrimination to increase welfare when all markets are not served by uniform pricing.

Suggested Citation

  • Debashis Pal & Victor Kaftal, 2005. "Does Third Degree Price Discrimination Reduce Social Welfare?," University of Cincinnati, Economics Working Papers Series 2005-03, University of Cincinnati, Department of Economics.
    • Handle: RePEc:cin:ucecwp:2005-03
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