Uniform pricing and social welfare
AbstractWe re-examine the case for uniform pricing in a monopolistic third-degree price-discrimination setting by introducing differentiated costs. A profit-maximizing monopolist could then use price differentiation to reduce the production of the more costly goods, thereby decreasing average cost and increasing welfare. Indeed, monopolistic price differentiation can improve welfare and also aggregate consumer surplus even if, as in the benchmark linear case, total output does not increase. Accordingly, the welfare criterion based on total output fails and should be replaced by the computation of well-defined price indexes. These results possibly pave the way for a more optimistic assessment of monopolistic pricing.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1082.
Date of creation: Sep 2005
Date of revision:
uniform pricing; third-degree price discrimination; welfare bounds; price and quantity indexes;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-COM-2007-01-14 (Industrial Competition)
- NEP-IND-2007-01-14 (Industrial Organization)
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