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Free entry and welfare with price discrimination

Author

Listed:
  • Francisco Galera

    (Universidad de Navarra)

  • Pedro Mendi

    (Universidad de Navarra)

Abstract

We show that if firms in an industry engage in third-degree price discrimination, the number of firms in the free-entry equilibrium may be inefficiently low. This result is obtained even with set up costs and a price above marginal cost. We discuss the relevant implications that our result has for policy design.

Suggested Citation

  • Francisco Galera & Pedro Mendi, 2011. "Free entry and welfare with price discrimination," Economics Bulletin, AccessEcon, vol. 31(4), pages 3268-3274.
    • Handle: RePEc:ebl:ecbull:eb-11-00117
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P297.pdf
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    References listed on IDEAS

    as
    1. C.C. von Weizsaker, 1980. "A Welfare Analysis of Barriers to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 399-420, Autumn.
    2. Kotaro Suzumura & Kazuharu Kiyono, 1987. "Entry Barriers and Economic Welfare," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 157-167.
    3. Ghosh, Arghya & Morita, Hodaka, 2007. "Social desirability of free entry: A bilateral oligopoly analysis," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 925-934, October.
    4. Arghya Ghosh & Hodaka Morita, 2007. "Free entry and social efficiency under vertical oligopoly," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 541-554, June.
    5. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Free entry; Social welfare; Third-degree price discrimination; Oligopoly; Business stealing.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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