Screening with Congestion
We study the effect of congestion on monopoly second-degree price discrimination. We provide three results. First, with congestion, the firm does not always provide distinct contracts (i.e., it is not always optimal to price discriminate) and it is more likely for the low-valuation buyer to be excluded. Second, the presence of congestion implies that no buyer receives an efficient allocation. In particular, the high-valuation buyer might be offered a higher or a lower quality (relative to the first-degree price discrimination offer). Finally, congestion might be beneficial to buyers. Specifically, for values of the parameters for which all types are serviced, consumer surplus under second-degree price discrimination may be greater than consumer surplus under no price discrimination.
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- Schmalensee, Richard, 1981.
"Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination,"
American Economic Review,
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- Austan Goolsbee & Peter J. Klenow, 2006. "Valuing Consumer Products by the Time Spent Using Them: An Application to the Internet," NBER Working Papers 11995, National Bureau of Economic Research, Inc.
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- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September. Full references (including those not matched with items on IDEAS)
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