Market Separation, Negative Consumption Externalities and Capacity Constraints
AbstractCompanies that offer services with capacity constraints in which there are negative consumption externalities (such as restaurants that serve smokers and non-smokers, airlines that fyy passengers travelling with infants and without infants or organizers of sport events that serve aggressive and friendly supporters) tend to separate generators of the externality from receptors of the externality. Do consumers and/or Society end better off with this type of separation? We show that if firms have complete information then: unless the number of consumers is small enough, as a net effect, consumers end worse off with separation than without it. Instead, when investment in separation is negligible, firms always prefer separation. This is true regardless whether firms price discriminate consumers. On the other side, if firms have incomplete information then: consumers prefer no separation if their number is small enough and firms always prefer no-separation -also when investment in separation is negligible. First we derive the results in the context of a monopoly that serves a linear demand, later we address robustness and discuss policy implications.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 448.
Date of creation: 2013
Date of revision:
Optimal prices; welfare analysis; capacity constraints; negative consumption externality; market separation;
Find related papers by JEL classification:
- L4 - Industrial Organization - - Antitrust Issues and Policies
- L5 - Industrial Organization - - Regulation and Industrial Policy
- L8 - Industrial Organization - - Industry Studies: Services
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Adachi, Takanori, 2002. "A Note on 'Third-Degree Price Discrimination with Interdependent Demands.'," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 235, June.
- Jeffery Borland, 2003. "Demand for Sport," Oxford Review of Economic Policy, Oxford University Press, vol. 19(4), pages 478-502, Winter.
- Layson, Stephen K, 1994. "Market Opening under Third-Degree Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 335-40, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jaime Casassus).
If references are entirely missing, you can add them using this form.