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The welfare effects of third-degree price discrimination with non-linear demand functions

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  • Simon Cowan

Abstract

The welfare effects of third-degree price discrimination are analyzed when demand in one market is an additively shifted version of demand in the other market and both markets are served with uniform pricing. Social welfare is lower with discrimination if the slope of demand is log-concave or the convexity of demand is non-decreasing in the price. The demand functions commonly used in models of imperfect competition satisfy at least one of these sufficient conditions.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 364.

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Date of creation: 01 Oct 2007
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Handle: RePEc:oxf:wpaper:364

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Keywords: Price Discrimination; Monopoly;

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References

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  1. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-92, July.
  2. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
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  5. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Social Choice: A Mean Voter Theorem," Cowles Foundation Discussion Papers 938, Cowles Foundation for Research in Economics, Yale University.
  6. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  7. An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers 95-03, Duke University, Department of Economics.
  8. Armstrong, M., 2006. "Recent developments in the economics of price discrimination," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  9. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
  10. Hausman, J.A. & Mackie-Mason, J.K., 1988. "Price Discrimination And Patent Policy," Papers 88-13, Michigan - Center for Research on Economic & Social Theory.
  11. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  12. Friedman, David, 1987. "Cold Houses in Warm Climates and Vice Versa: A Paradox of Rational Heating," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1089-97, October.
  13. Takanori Adachi, 2005. "Third-Degree Price Discrimination, Consumption Externalities and Social Welfare," Economica, London School of Economics and Political Science, vol. 72(285), pages 171-178, 02.
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Cited by:
  1. Aguirre Pérez, Ignacio, 2011. "Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian," IKERLANAK 2011-54, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  2. Takanori Adachi & Noriaki Matsushima, 2011. "The Welfare Effects of Third-Degree PriceDiscrimination in a Differentiated Oligopoly," KIER Working Papers 800, Kyoto University, Institute of Economic Research.
  3. Armstrong, M, 2008. "Price Discrimination," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  4. Aguirre Pérez, Ignacio & Cowan, Simon & Vickers, John, 2009. "Monopoly Price Discrimination and Demand Curvature," IKERLANAK 2009-39, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  5. Arghya Ghosh & Alberto Motta, 2011. "Outsourcing with Heterogeneous Firms," Discussion Papers 2011-09, School of Economics, The University of New South Wales.
  6. 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.
  7. Li, Youping, 2011. "Timing of investments and third degree price discrimination in intermediate good markets," MPRA Paper 36746, University Library of Munich, Germany.

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