Third-Degree Price Discrimination and Consumer Surplus
This paper presents simple conditions for monopoly third-degree price discrimination to have negative or positive effects on aggregate consumer surplus.� Consumer surplus is often reduced by discrimination, for example when total welfare (consumer surplus and profits) falls.� Surplus increases with discrimination, however, in two cases: first, when the marginal revenues without discrimination are close together and inverse demand in the market where the price will fall with discrimination is more convex; second, when inverse demand functions are highly convex and the discriminatory prices are close together.
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Volume (Year): 60 (2012)
Issue (Month): 2 (06)
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References listed on IDEAS
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- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
- T. Beard & Michael Stern, 2008. "Bounding consumer surplus by monopoly profits," Journal of Regulatory Economics, Springer, vol. 34(1), pages 86-94, August.
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- Paul Klemperer & Jeremy Bulow, 2009. "Price Controls and Consumer Surplus," Economics Series Working Papers 2009-W07, University of Oxford, Department of Economics.
- Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
- Malueg, David A. & Snyder, Christopher M., 2006. "Bounding the relative profitability of price discrimination," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 995-1011, September.
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