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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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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 60 (2012)
Issue (Month): 2 (06)
Pages: 333-345

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Handle: RePEc:bla:jindec:v:60:y:2012:i:2:p:333-345
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  1. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  2. T. Beard & Michael Stern, 2008. "Bounding consumer surplus by monopoly profits," Journal of Regulatory Economics, Springer, vol. 34(1), pages 86-94, August.
  3. Bulow, Jeremy I. & Klemperer, Paul, 2009. "Price Controls and Consumer Surplus," CEPR Discussion Papers 7412, C.E.P.R. Discussion Papers.
  4. 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.
  5. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  6. 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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