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Third-Degree Price Discrimination in the Presence of Subsidies

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  • Stefan Felder

Abstract

According to a classical result, a move from uniform pricing to third-degree price discrimination only improves welfare if total output increases. In this paper I show that the classical result fails in the presence of subsidies. This finding appears to be relevant for the pharmaceutical sector where a consumer pays a fraction of the actual drug price due to health insurance coverage. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.

Suggested Citation

  • Stefan Felder, 2006. "Third-Degree Price Discrimination in the Presence of Subsidies," German Economic Review, Verein für Socialpolitik, vol. 7, pages 419-426, November.
  • Handle: RePEc:bla:germec:v:7:y:2006:i::p:419-426
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    Cited by:

    1. Rajat Archaryya & María del Carmen García-Alonso, 2009. "Health Systems, Inequality and Incentives to Innovate," Studies in Economics 0902, School of Economics, University of Kent.
    2. Pedro Barros & Xavier Martinez-Giralt, 2008. "On international cost-sharing of pharmaceutical R&D," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 301-312, December.
    3. Rajat Acharyya & María D. C. García-Alonso, 2014. "Universal Access, Parallel Trade And Incentives To Innovate," Bulletin of Economic Research, Wiley Blackwell, vol. 66(S1), pages 74-91, December.
    4. Pedro Pita Barros & Xavier Martínez-Giralt, 2006. "On insurance and the cost-sharing of pharmaceutical R&D," Working Papers 293, Barcelona Graduate School of Economics.
    5. Edward Lopez & David Molina, 2010. "Third-Degree Price Discrimination: Apology Not Necessary," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(4), pages 383-397, December.
    6. Rajat Acharyya & Maria D.C. Garcia-Alonso, 2008. "Income-Based Price Subsidies, Parallel Imports and Markets Access to New Drugs for the Poor," Studies in Economics 0820, School of Economics, University of Kent.

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