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Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian

  • Aguirre Pérez, Iñaki

Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination.

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Paper provided by Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I in its series IKERLANAK with number 2011-54.

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Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ehu:ikerla:201154
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Order Information: Postal: Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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  1. I�aki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-15, September.
  2. Simon GB Cowan & Simon Cowan, 2009. "Third-Degree Price Discrimination and Consumer Surplus," Economics Series Working Papers 462, University of Oxford, Department of Economics.
  3. 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, 06.
  4. 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.
  5. Simon P. Anderson & Régis Renault, 2011. "Price Discrimination," Chapters, in: A Handbook of Transport Economics, chapter 22 Edward Elgar.
  6. 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 1254-58, December.
  7. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  8. Leeson, Peter T. & Sobel, Russell S., 2008. "Costly price discrimination," Economics Letters, Elsevier, vol. 99(1), pages 206-208, April.
  9. Paolo Bertoletti, 2009. "On the output criterion for price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 2951-2956.
  10. Liu Qihong & Serfes Konstantinos, 2011. "Third-Degree Price Discrimination," Journal of Industrial Organization Education, De Gruyter, vol. 5(1), pages 1-23, March.
  11. 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 892-99, December.
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