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Can Price Discrimination be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation

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  • Azar Ofer H

    (Northwestern University)

Abstract

The article examines a differentiated-products duopoly model where the firms make entry decisions to two markets and then choose prices. The effects of product differentiation and entry costs are analyzed in two games: with and without price discrimination between the markets. Allowing price discrimination encourages more entry and tends to reduce prices and profits and to increase consumer welfare in both markets. The model suggests that firms might be better off if they agree not to price discriminate between different markets. It also suggests that when the market is not a natural monopoly, regulators should consider the effects of universal service requirements on entry before adopting them, because entry might be discouraged by such requirements, leading to less competitive markets.

Suggested Citation

  • Azar Ofer H, 2003. "Can Price Discrimination be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-19, September.
    • Handle: RePEc:bpj:bejeap:v:topics.3:y:2003:i:1:n:12
    DOI: 10.2202/1538-0653.1176
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    References listed on IDEAS

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    Cited by:

    1. Sílvia Jorge & Cesaltina Pires, 2007. "Entry Decision and Pricing Policies," Working Papers de Economia (Economics Working Papers) 41, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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