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Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria

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Author Info

  • V. Bhaskar

    (University of Essex, Wivenhoe)

  • Ted To

    (Bureau of Labor Statistics)

Abstract

We analyze models of product differentiation with perfect price discrimination and free entry. Although perfect price discrimination ensures efficient output decisions given product characteristics, coordination failures may prevent efficiency in the choice of product characteristics. More fundamentally, even if we have efficient product choices for a fixed number of firms, one always has excessive entry in free entry equilibrium. Our results apply to a large class of models of product differentiation including location models as well as representative consumer models of the demand for variety. These results also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of lobbyists.

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File URL: http://128.118.178.162/eps/io/papers/0004/0004011.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0004011.

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Length: 22 pages
Date of creation: 13 Dec 2000
Date of revision:
Handle: RePEc:wpa:wuwpio:0004011

Note: Type of Document - LaTeX; prepared on IBM PC - PC-TEX; to print on any; pages: 22 + title
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Web page: http://128.118.178.162

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Keywords: price discrimination; efficiency; free entry; product differentiation;

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References

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  1. Osborne, Martin J & Slivinski, Al, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 65-96, February.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Laussel, Didier & Le Breton, Michel, 1996. "Complements and substitutes in common agency," Ricerche Economiche, Elsevier, vol. 50(4), pages 325-345, December.
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  6. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
  7. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  8. Dirk & Juuso Valimaki, 1998. "Dynamic Common Agency," Cowles Foundation Discussion Papers 1206, Cowles Foundation for Research in Economics, Yale University.
  9. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
  11. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  12. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
  13. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  14. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
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Cited by:
  1. Stuart, Harborne Jr., 2004. "Efficient spatial competition," Games and Economic Behavior, Elsevier, vol. 49(2), pages 345-362, November.
  2. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.

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