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Welfare of Competitive Price Discrimination with Captive Consumers

Author

Listed:
  • Yanlin Chen
  • Xianwen Shi
  • Jun Zhang

Abstract

We study the welfare effects of price discrimination in a duopoly with both captive and contested consumers. Using a unified information design approach, we characterize the best and worst market segmentations for producer surplus, consumer surplus, and social surplus. The firm-optimal segmentation, which divides the market into two nested segments, consistently reduces consumer welfare relative to uniform pricing. The consumer-optimal segmentation, which divides the market into a symmetric segment and a nested segment, may sometimes yield a Pareto improvement but does not necessarily coincide with the social-optimal segmentation.

Suggested Citation

  • Yanlin Chen & Xianwen Shi & Jun Zhang, 2026. "Welfare of Competitive Price Discrimination with Captive Consumers," American Economic Journal: Microeconomics, American Economic Association, vol. 18(3), pages 203-243, August.
    • Handle: RePEc:aea:aejmic:v:18:y:2026:i:3:p:203-43
    DOI: 10.1257/mic.20230234
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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