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First degree discrimination in a competitive setting : pricing and quality choice


  • David Encaoua

    () (EUREQua)

  • Abraham Hollander

    (Université de Montréal)


The paper investigates competition in price schedules among vertically differentiated producers. First order price discrimination leading to personalized prices is the perfect equilibrium of the two-stage game where firms choose at the first stage to commit or not to a uniform price and compete at the second stage. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms and on the disparity of consumer preferences. Finally, firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective.

Suggested Citation

  • David Encaoua & Abraham Hollander, 2004. "First degree discrimination in a competitive setting : pricing and quality choice," Cahiers de la Maison des Sciences Economiques v05010, Université Panthéon-Sorbonne (Paris 1).
  • Handle: RePEc:mse:wpsorb:v05010

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    References listed on IDEAS

    1. Kling, Catherine L. & Zhao, Jinhua, 2000. "On the long-run efficiency of auctioned vs. free permits," Economics Letters, Elsevier, vol. 69(2), pages 235-238, November.
    2. Rob Van der Laan & Andries Nentjes, 2001. "Competitive Distortions in EU Environmental Legislation: Inefficiency versus Inequity," European Journal of Law and Economics, Springer, vol. 11(2), pages 131-152, March.
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    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    5. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-840, Supplemen.
    6. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
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    More about this item


    Price discrimination; price schedules; personalized prices; vertical differentiation.;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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