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Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem

  • John Vickers
  • Simon Cowan

This paper uses convexity arguments to determine the effects of monopolistic third-degree price discrimination on total output and welfare. We focus on benchmark cases, including constant demand elasticities, with constant curvature of inverse demand σ. We show how the effects of price discrimination depend on (a) the degree of curvature σ relative to zero (for output) and one (for welfare), and (b) whether low-price markets have greater curvature than high-price markets.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper355.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 355.

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Date of creation: 01 Sep 2007
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Handle: RePEc:oxf:wpaper:355
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  1. repec:ebl:ecbull:v:4:y:2006:i:23:p:1-6 is not listed on IDEAS
  2. 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.
  3. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
  4. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-62, December.
  5. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  6. Shih, Jun-ji & Mai, Chao-cheng & Liu, Jung-chao, 1988. "A General Analysis of the Output Effect under Third-Degree Price Discrimination," Economic Journal, Royal Economic Society, vol. 98(389), pages 149-58, March.
  7. 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.
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