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Second degree price discrimination and natural monopoly

  • Alfons J. Weichenrieder

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.

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Article provided by Wiley Blackwell in its journal Bulletin of Economic Research.

Volume (Year): 56 (2004)
Issue (Month): 2 (04)
Pages: 189-200

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Handle: RePEc:bla:buecrs:v:56:y:2004:i:2:p:189-200
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