Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry
We analyze models of product differentiation with perfect price discrimination and free entry. With a fixed number of firms, and in the absence of coordination failures, perfect price discrimination provides incentives for firms to choose product characteristics in a socially optimal way. However, with free entry, the number of firms is always excessive. Our results apply to a large class of models of product differentiation. They also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of the principals.
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Volume (Year): 35 (2004)
Issue (Month): 4 (Winter)
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- Dirk & Juuso Valimaki, 1998.
"Dynamic Common Agency,"
Cowles Foundation Discussion Papers
1206, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
- Stuart, Harborne Jr., 2004. "Efficient spatial competition," Games and Economic Behavior, Elsevier, vol. 49(2), pages 345-362, November.
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