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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.

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
    DOI: 10.1111/j.1467-8586.2004.00196.x
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    References listed on IDEAS

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    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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    3. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    4. Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August.
    5. Oren, Shmuel S. & Smith, Stephen A. & Wilson, Robert B., 1983. "Competitive nonlinear tariffs," Journal of Economic Theory, Elsevier, vol. 29(1), pages 49-71, February.
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    Cited by:

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    2. Andersson, Tommy, 2005. "Nonlinear Pricing and the Utility Possibility Set," Working Papers 2005:19, Lund University, Department of Economics.

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