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Monopoly price discrimination with constant elasticity demand

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  • Aguirre Pérez, Iñaki
  • Cowan, Simon George

Abstract

This paper presents new results on the welfare e¤ects of third-degree price discrimination under constant elasticity demand. We show that when both the share of the strong market under uniform pricing and the elasticity di¤erence between markets are high enough,then price discrimination not only can increase social welfare but also consumer surplus.

Suggested Citation

  • Aguirre Pérez, Iñaki & Cowan, Simon George, 2013. "Monopoly price discrimination with constant elasticity demand," IKERLANAK Ikerlanak;2013-74, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  • Handle: RePEc:ehu:ikerla:11103
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    References listed on IDEAS

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    1. Iñaki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-1615, September.
    2. 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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    4. 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.
    5. Rabah Amir & Isabelle Maret & Michael Troege, 2004. "On Taxation Pass-Through for a Monopoly Firm," Annals of Economics and Statistics, GENES, issue 75-76, pages 155-172.
    6. Simon Cowan, 2012. "Third-Degree Price Discrimination and Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 333-345, June.
    7. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    8. Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
    9. repec:adr:anecst:y:2004:i:75-76:p:08 is not listed on IDEAS
    10. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August.
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    12. Simon Cowan, 2007. "The welfare effects of third-degree price discrimination with nonlinear demand functions," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 419-428, June.
    13. W. Leontief, 1940. "The Theory of Limited and Unlimited Discrimination," The Quarterly Journal of Economics, Oxford University Press, vol. 54(3), pages 490-501.
    14. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
    15. Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent Seeking, and Consumer Surplus," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 160-186.
    16. Formby, John P & Layson, Stephen K & Smith, W James, 1983. "Price Discrimination, 'Adjusted Concavity,' and Output Changes under Conditions of Constant Elasticity," Economic Journal, Royal Economic Society, vol. 93(372), pages 892-899, December.
    17. 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.
    18. John K.‐H. Quah & Bruno Strulovici, 2012. "Aggregating the Single Crossing Property," Econometrica, Econometric Society, vol. 80(5), pages 2333-2348, September.
    19. Greenhut, M L & Ohta, H, 1976. "Joan Robinson's Criterion for Deciding Whether Market Discriminntion Reduces Output," Economic Journal, Royal Economic Society, vol. 86(341), pages 96-97, March.
    20. repec:adr:anecst:y:2004:i:75-76 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Simon GB Cowan, 2017. "A Model of Third-Degree Price Discrimination with Positive Welfare Effects," Economics Series Working Papers 829, University of Oxford, Department of Economics.
    2. John Vickers, 2017. "Direct welfare analysis of relative price regulation," Economics Series Working Papers 828, University of Oxford, Department of Economics.
    3. Simon Cowan, 2016. "Welfare-increasing third-degree price discrimination," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 326-340, May.
    4. 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.

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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