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Output and misallocation effects in monopolistic third-degree price discrimination

Author

Listed:
  • Iñaki Aguirre

    () (University of the Basque Country)

Abstract

This paper shows how the welfare effects of third-degree price discrimination may be decomposed into two effects: a misallocation effect and an output effect. It also presents a geometrical analysis which shows how the welfare properties of third-degree price discrimination must be assessed using nonlinear demands, and hence how linear demands are not suitable for the analysis.

Suggested Citation

  • Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
  • Handle: RePEc:ebl:ecbull:eb-08d40022
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    References listed on IDEAS

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    1. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, pages 1259-1262.
    2. de la Croix, David & de Walque, Gregory & Wouters, Rafael, 2009. "A Note On Inflation Persistence In A Fair Wage Model Of The Business Cycle," Macroeconomic Dynamics, Cambridge University Press, pages 673-684.
    3. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, pages 870-875.
    4. Hubbell, Bryan J. & Marra, Michele C. & Carlson, Gerald A., 2000. "Estimating The Demand For A New Technology: Bt Cotton And Insecticide Policies In The Southeast," Proceedings:Transitions in Agbiotech: Economics of Strategy and Policy, June 24-25, 1999, Washington, D.C. 26016, Regional Research Project NE-165 Private Strategies, Public Policies, and Food System Performance.
    5. Simon GB Cowan & Simon Cowan, 2004. "The welfare effects of third-degree price discrimination," Economics Series Working Papers 205, University of Oxford, Department of Economics.
    6. Formby, John P & Layson, Stephen K & Smith, W James, 1983. "Price Discrimination, 'Adjusted Concavity,' and Output Changes under Conditions of Constant Elasticity," Economic Journal, Royal Economic Society, vol. 93(372), pages 892-899, December.
    7. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, pages 242-247.
    8. Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Layson, Stephen, 1988. "Third-Degree Price Discrimination, Welfare and Profits: A Geometrical Analysis," American Economic Review, American Economic Association, pages 1131-1132.
    10. John Vickers & Simon Cowan, 2007. "Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem," Economics Series Working Papers 355, University of Oxford, Department of Economics.
    11. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    12. Maarten Dossche & Freddy Heylen & Dirk Van den Poel, 2010. "The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data," Scandinavian Journal of Economics, Wiley Blackwell, pages 723-752.
    13. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    14. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
    15. Bryan J. Hubbell & Michele C. Marra & Gerald A. Carlson, 2000. "Estimating the Demand for a New Technology: Bt Cotton and Insecticide Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(1), pages 118-132.
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    Citations

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    Cited by:

    1. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, pages 141-152.
    2. Iñaki Aguirre & Simon G. Cowan, 2015. "Monopoly price discrimination with constant elasticity demand," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 329-340, October.
    3. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    4. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, pages 1601-1615.
    5. Castle, Jennifer L. & Hendry, David F., 2009. "The long-run determinants of UK wages, 1860-2004," Journal of Macroeconomics, Elsevier, vol. 31(1), pages 5-28, March.
    6. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.

    More about this item

    Keywords

    Welfare;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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