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Welfare and output in third-degree price discrimination: A note

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  • Galera, Francisco
  • Zaratiegui, Jesus M.

Abstract

In this note I provide examples to show that, contrary to what is widely believed, when changing from an uniform price to a third-degree price discrimination situation, an improvement in welfare is possible with output reduction, if there is more than one firm.
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Suggested Citation

  • Galera, Francisco & Zaratiegui, Jesus M., 2006. "Welfare and output in third-degree price discrimination: A note," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 605-611, May.
    • Handle: RePEc:eee:indorg:v:24:y:2006:i:3:p:605-611
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    References listed on IDEAS

    as
    1. Adachi, Takanori, 2002. "A Note on 'Third-Degree Price Discrimination with Interdependent Demands.'," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 235-235, June.
    2. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
    3. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    4. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    5. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    6. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn.
    7. Takanori Adachi, 2005. "Third-Degree Price Discrimination, Consumption Externalities and Social Welfare," Economica, London School of Economics and Political Science, vol. 72(285), pages 171-178, February.
    8. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-1262, December.
    9. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
    10. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    11. Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, vol. 90(1), pages 240-246, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Takanori Adachi & Noriaki Matsushima, 2014. "The Welfare Effects Of Third-Degree Price Discrimination In A Differentiated Oligopoly," Economic Inquiry, Western Economic Association International, vol. 52(3), pages 1231-1244, July.
    2. Francisco Galera & Pedro Garcia-del-Barrio & Pedro Mendi, 2019. "Consumer surplus bias and the welfare effects of price discrimination," Journal of Regulatory Economics, Springer, vol. 55(1), pages 33-45, February.
    3. Braouezec, Yann, 2016. "On the welfare effects of regulating the number of discriminatory prices," Research in Economics, Elsevier, vol. 70(4), pages 588-607.
    4. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    5. Zheng, Xuemei & Wu, Chengkuan & He, Shijun, 2021. "Impacts of China's differential electricity pricing on the productivity of energy-intensive industries," Energy Economics, Elsevier, vol. 94(C).
    6. Aguirre, Iñaki, 2019. "Oligopoly price discrimination, competitive pressure and total output," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-16.
    7. Lin, Boqiang & Liu, Jianghua, 2011. "Principles, effects and problems of differential power pricing policy for energy intensive industries in China," Energy, Elsevier, vol. 36(1), pages 111-118.
    8. Pedro Barros & Xavier Martinez-Giralt, 2008. "On international cost-sharing of pharmaceutical R&D," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 301-312, December.
    9. Takanori Adachi & Takeshi Ebina, 2016. "Log-linear demand systems with differentiated products are inconsistent with the representative consumer approach," Economics Bulletin, AccessEcon, vol. 36(1), pages 260-267.
    10. repec:ebl:ecbull:v:4:y:2006:i:23:p:1-6 is not listed on IDEAS
    11. Torben Klarl, 2018. "Complementarity of willingness to pay and cost heterogeneity under vertical product differentiation: A welfare analysis," Journal of Evolutionary Economics, Springer, vol. 28(3), pages 591-607, August.
    12. Yeung-Nan Shieh, 2006. "Monopsonistic wage discrimination and employment effect under conditions of constant labor supply elasticity," Economics Bulletin, AccessEcon, vol. 4(32), pages 1-4.
    13. Edward Lopez & David Molina, 2010. "Third-Degree Price Discrimination: Apology Not Necessary," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(4), pages 383-397, December.
    14. Ebenezer Tetteh, 2009. "Implementing differential pricing for essential medicines via country-specific bilateral negotiated discounts," Applied Health Economics and Health Policy, Springer, vol. 7(2), pages 71-89, June.
    15. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Quality Differences, Third-Degree Price Discrimination, And Welfare," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 339-351, January.
    16. Adachi, Takanori, 2023. "A sufficient statistics approach for welfare analysis of oligopolistic third‐degree price discrimination," International Journal of Industrial Organization, Elsevier, vol. 86(C).
    17. Francisco Galera & Pedro Mendi & Juan Carlos Molero, 2017. "Seasonality, price discrimination, and welfare," Journal of Economics, Springer, vol. 120(3), pages 269-277, April.
    18. repec:ebl:ecbull:v:17:y:2007:i:2:p:1-10 is not listed on IDEAS
    19. Guo, Wen-Chung & Lai, Fu-Chuan, 2022. "Price discrimination under online–offline competition," Economics Letters, Elsevier, vol. 216(C).
    20. Bertoletti, Paolo, 2005. "Uniform pricing and social welfare," MPRA Paper 1082, University Library of Munich, Germany.
    21. repec:ebl:ecbull:v:4:y:2006:i:32:p:1-4 is not listed on IDEAS
    22. Shigeru Matsumoto & Hajime Sugeta, 2007. "Antitrust Policy and Environmental Protection," Economics Bulletin, AccessEcon, vol. 17(2), pages 1-10.
    23. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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