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Uniform pricing and social welfare

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  • Bertoletti, Paolo

Abstract

We 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1082.

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Date of creation: Sep 2005
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Handle: RePEc:pra:mprapa:1082

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Keywords: uniform pricing; third-degree price discrimination; welfare bounds; price and quantity indexes;

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  1. Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Galera, Francisco & Zaratiegui, Jesus M., 2006. "Welfare and output in third-degree price discrimination: A note," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 605-611, May.
  3. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  4. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1259-62, December.
  5. Luís M. B. Cabral, 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262032864, December.
  6. Layson, Stephen K, 1998. "Third-Degree Price Discrimination with Interdependent Demands," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(4), pages 511-24, December.
  7. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1254-58, December.
  8. Sofronis K. Clerides, 2004. "Price Discrimination with Differentiated Products: Definition and Identification," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 42(3), pages 402-412, July.
  9. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier, Elsevier.
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Cited by:
  1. DIAKITE Daouda & SEMENOV Aggey & THOMAS Alban, 2006. "Social Pricing and Water Provision in Côte d'Ivoire," LERNA Working Papers, LERNA, University of Toulouse 06.14.207, LERNA, University of Toulouse.

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