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Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem

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  • John Vickers
  • Simon Cowan

Abstract

This paper uses convexity arguments to determine the effects of monopolistic third-degree price discrimination on total output and welfare. We focus on benchmark cases, including constant demand elasticities, with constant curvature of inverse demand σ. We show how the effects of price discrimination depend on (a) the degree of curvature σ relative to zero (for output) and one (for welfare), and (b) whether low-price markets have greater curvature than high-price markets.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper355.pdf
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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 355.

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Date of creation: 01 Sep 2007
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Handle: RePEc:oxf:wpaper:355

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Keywords: Price Discrimination; Monopoly;

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References

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  1. repec:ebl:ecbull:v:4:y:2006:i:23:p:1-6 is not listed on IDEAS
  2. 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.
  3. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-62, December.
  4. Shih, Jun-ji & Mai, Chao-cheng & Liu, Jung-chao, 1988. "A General Analysis of the Output Effect under Third-Degree Price Discrimination," Economic Journal, Royal Economic Society, vol. 98(389), pages 149-58, March.
  5. 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.
  6. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  7. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
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Cited by:
  1. Simon GB Cowan & Simon Cowan, 2008. "When does third-degree price discrimination reduce social welfare, and when does it raise it?," Economics Series Working Papers 410, University of Oxford, Department of Economics.
  2. Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
  3. Paolo Bertoletti, 2009. "On the output criterion for price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 2951-2956.
  4. Robert A. Ritz, 2008. "Cost pass-through under delegation," Economics Series Working Papers 404, University of Oxford, Department of Economics.
  5. Zhu Wang & Julian Wright, 2012. "Ad-valorem platform fees and efficient price discrimination," Working Paper 12-08, Federal Reserve Bank of Richmond.
  6. repec:ebl:ecbull:v:4:y:2008:i:11:p:1-11 is not listed on IDEAS

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