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Second degree price discrimination and natural monopoly

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  • Alfons J. Weichenrieder

Abstract

This paper considers the efficiency of a contestable natural monopoly if consumers are heterogeneous and the monopolist can differentiate prices imperfectly. The paper shows that a "no-distortion-at-the-top" result, which is standard in models with restricted entry, may also appear in a contestable market. Depending on cost and demand structures, first best efficiency can also be a sustainable equilibrium. However, due to the existence of a continuum of equilibria, first best efficiency is not guaranteed. Most notably, even a stable "distortion-at-the-top" result is possible. Copyright Blackwell Publishers Ltd and the Board of Trustees of the Bulletin of Economic Research, 2004.

Suggested Citation

  • Alfons J. Weichenrieder, 2004. "Second degree price discrimination and natural monopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 56(2), pages 189-200, April.
  • Handle: RePEc:bla:buecrs:v:56:y:2004:i:2:p:189-200
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    Cited by:

    1. Kawasaki, Akio, 2008. "Network effects, heterogeneous time value and network formation in the airline market," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 388-403, July.
    2. Andersson, Tommy, 2005. "Nonlinear Pricing and the Utility Possibility Set," Working Papers 2005:19, Lund University, Department of Economics.

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