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Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian

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  • Aguirre Pérez, Iñaki

Abstract

Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination.

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Paper provided by Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I in its series IKERLANAK with number 2011-54.

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Date of creation: Oct 2011
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Handle: RePEc:ehu:ikerla:201154

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Postal: Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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  1. Cowan, Simon & Vickers, John & Aguirre Pérez, Iñaki, 2009. "Monopoly Price Discrimination and Demand Curvature," IKERLANAK 2009-39, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  2. Liu Qihong & Serfes Konstantinos, 2011. "Third-Degree Price Discrimination," Journal of Industrial Organization Education, De Gruyter, vol. 5(1), pages 1-23, March.
  3. Leeson, Peter T. & Sobel, Russell S., 2008. "Costly price discrimination," Economics Letters, Elsevier, vol. 99(1), pages 206-208, April.
  4. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 80(5), pages 1254-58, December.
  5. Simon GB Cowan & Simon Cowan, 2009. "Third-Degree Price Discrimination and Consumer Surplus," Economics Series Working Papers 462, University of Oxford, Department of Economics.
  6. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  7. Paolo Bertoletti, 2009. "On the output criterion for price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 2951-2956.
  8. Simon Cowan, 2007. "The welfare effects of third-degree price discrimination with non-linear demand functions," Economics Series Working Papers 364, University of Oxford, Department of Economics.
  9. Formby, John P & Layson, Stephen K & Smith, W James, 1983. "Price Discrimination, 'Adjusted Concavity,' and Output Changes under Conditions of Constant Elasticity," Economic Journal, Royal Economic Society, vol. 93(372), pages 892-99, December.
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