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Diagrammatic Approach to Capacity-Constrained Price Discrimination


  • William S. Reece
  • Russell S. Sobel


This paper presents a diagrammatic solution to the firm’s profit-maximizing price discrimination problem in the face of capacity constraints. Airlines, hotels, and other firms practice yield management, allocating fixed capacity to customer groups paying different prices. In these cases, the firm’s short-run problem is not a decision about production levels, but it is one of allocating a fixed number of output units among customers. Our diagram shows that the conditions for profit-maximizing price discrimination are very different under these circumstances than in the standard model in which the firm is not constrained by capacity.

Suggested Citation

  • William S. Reece & Russell S. Sobel, 2000. "Diagrammatic Approach to Capacity-Constrained Price Discrimination," Southern Economic Journal, Southern Economic Association, vol. 66(4), pages 1001-1008, April.
  • Handle: RePEc:sej:ancoec:v:66:4:y:2000:p:1001-1008

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    References listed on IDEAS

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    Cited by:

    1. Anne-Christine Barthel, 2013. "Extending The Scope Of Monotone Comparative Statics Results," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201305, University of Kansas, Department of Economics, revised May 2013.
    2. 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.

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