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Third-Degree Price Discrimination, Consumption Externalities, and Market Opening

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  • Tomohisa Okada
  • Takanori Adachi

Abstract

This study investigates the effects of monopolistic third-degree price discrimination on market opening in the presence of consumption externalities between separate markets. Assuming symmetric interdependent linear demands and constant marginal cost, we indicate the possibility that with negative externalities a monopolist can do better by closing the relatively small market from the social welfare viewpoint, while it prefers opening that market if price discrimination is feasible. This result contradicts the previous literature on third-degree price discrimination and market opening which asserts that, in the case of non-increasing marginal cost, price discrimination improves social welfare if it opens new markets that are closed under uniform pricing. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Tomohisa Okada & Takanori Adachi, 2013. "Third-Degree Price Discrimination, Consumption Externalities, and Market Opening," Journal of Industry, Competition and Trade, Springer, vol. 13(2), pages 209-219, June.
    • Handle: RePEc:kap:jincot:v:13:y:2013:i:2:p:209-219
    DOI: 10.1007/s10842-011-0121-6
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    References listed on IDEAS

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    4. Layson, Stephen K, 1994. "Market Opening under Third-Degree Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 335-340, September.
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    8. Victor Kaftal & Debashis Pal, 2008. "Third Degree Price Discrimination in Linear-Demand Markets: Effects on Number of Markets Served and Social Welfare," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 558-573, October.
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    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. Tomohisa Okada, 2014. "Third-degree Price Discrimination with Fairness-concerned Consumers," Manchester School, University of Manchester, vol. 82(6), pages 701-715, December.
    3. Takanori ADACHI, 2022. "Recent Advances in the Theory of Third-Degree Price Discrimination: A Brief Survey," Discussion papers e-22-006, Graduate School of Economics , Kyoto University.

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    More about this item

    Keywords

    third-degree price discrimination; consumption externalities; market opening; D42; D62; L50;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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