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Neutrality of third-degree price discrimination

Author

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  • Chao, Yong
  • Nahata, Babu

Abstract

This note shows that compared to uniform pricing, third-degree price discrimination can be neutral. For linear demands, having all price intercepts of submarkets’ inverse demands to be the same is the necessary and sufficient condition for third-degree price discrimination to be neutral. For general demands, when all submarkets’ demands are proportional to each other, not only will all the submarkets be served under uniform pricing, but all prices before and after price discrimination will be the same.

Suggested Citation

  • Chao, Yong & Nahata, Babu, 2021. "Neutrality of third-degree price discrimination," International Review of Economics Education, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:ireced:v:36:y:2021:i:c:s1477388020300347
    DOI: 10.1016/j.iree.2020.100207
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    References listed on IDEAS

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    1. David K. Round & Ron P. Mclver, 2006. "Teaching Third-Degree Price Discrimination," The Journal of Economic Education, Taylor & Francis Journals, vol. 37(2), pages 236-243, April.
    2. 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.
    3. Simon Cowan, 2017. "A Model of Third-Degree Price Discrimination with Positive Welfare Effects," Economics Series Working Papers 829, University of Oxford, Department of Economics.
    4. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 80(5), pages 1254-1258, December.
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    More about this item

    Keywords

    Third-degree price discrimination; Neutrality; Price intercept; JEL Codes: A22; D42; D61; L40;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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