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The Welfare Effects Of Third-Degree Price Discrimination In A Differentiated Oligopoly

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  • TAKANORI ADACHI
  • NORIAKI MATSUSHIMA

Abstract

type="main" xml:lang="en"> This article examines the welfare effects of third-degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the “strong” market (where the discriminatory price is higher than the uniform price) than in the “weak” market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely owing to an increase in the firms' profits in the case of linear demands. (JEL D43, L11, L13)

Suggested Citation

  • Takanori Adachi & Noriaki Matsushima, 2014. "The Welfare Effects Of Third-Degree Price Discrimination In A Differentiated Oligopoly," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1231-1244, July.
  • Handle: RePEc:bla:ecinqu:v:52:y:2014:i:3:p:1231-1244
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    Cited by:

    1. Miklós-Thal, Jeanine & Shaffer, Greg, 2021. "Third-degree price discrimination in oligopoly with endogenous input costs," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Amarjyoti Mahanta, 2016. "Contemporaneous Most-Favoured-Customer Pricing Policy vs. Price Discrimination in a Differentiated Product Duopoly Market," Economics Bulletin, AccessEcon, vol. 36(1), pages 75-83.
    3. Aguirre, Iñaki, 2019. "Oligopoly price discrimination, competitive pressure and total output," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-16.
    4. Takanori ADACHI, 2022. "Recent Advances in the Theory of Third-Degree Price Discrimination: A Brief Survey," Discussion papers e-22-006, Graduate School of Economics , Kyoto University.
    5. Aguirre Pérez, Iñaki, 2011. "Multimarket Competition and Welfare Effects of Price discrimination," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    6. Aguirre Iñaki, 2016. "On the Economics of the “Meeting Competition Defense” Under the Robinson–Patman Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1213-1238, September.
    7. Aguirre, Iñaki, 2017. "Cournot Oligopoly, Price Discrimination and Total Output," MPRA Paper 80166, University Library of Munich, Germany.
    8. Guo, Wen-Chung & Lai, Fu-Chuan, 2022. "Price discrimination under online–offline competition," Economics Letters, Elsevier, vol. 216(C).
    9. Adachi, Takanori, 2023. "A sufficient statistics approach for welfare analysis of oligopolistic third‐degree price discrimination," International Journal of Industrial Organization, Elsevier, vol. 86(C).
    10. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Quality Differences, Third-Degree Price Discrimination, And Welfare," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 339-351, January.
    11. Zheng Zhang & Yingtong Wang & Qingchun Meng & Qiang Han, 2022. "Impact of Third-Degree Price Discrimination on Welfare under the Asymmetric Price Game," Mathematics, MDPI, vol. 10(8), pages 1-16, April.
    12. Gyódi Kristóf & Sobolewski Maciej & Ziembiński Michał, 2017. "What Drives Price Dispersion in the European E-commerce Industry?," Central European Economic Journal, Sciendo, vol. 3(50), pages 53-71, December.
    13. Akio Kawasaki, 2023. "Pricing Strategies and Partial Privatization Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(3), pages 293-319, May.
    14. Akio Kawasaki, 2020. "Airport pricing strategy by hub airports: does the number of local airports matter?," Asia-Pacific Journal of Regional Science, Springer, vol. 4(3), pages 835-857, October.
    15. Aguirre, Iñaki & Yenipazarli, Arda, 2022. "A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets," MPRA Paper 113746, University Library of Munich, Germany.
    16. Akio Kawasaki, 2022. "Pricing Strategies and Partial Privatization Policy Based on Complementary Competitive Market," Journal of Industry, Competition and Trade, Springer, vol. 22(1), pages 99-123, March.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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