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Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem

Author

Listed:
  • John Vickers
  • Simon Cowan

Abstract

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.

Suggested Citation

  • John Vickers & Simon Cowan, 2007. "Output and Welfare Effects in the Classic Monopoly Price Discrimination Problem," Economics Series Working Papers 355, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:355
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper355.pdf
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    References listed on IDEAS

    as
    1. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, pages 1259-1262.
    2. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, pages 870-875.
    3. repec:ebl:ecbull:v:4:y:2006:i:23:p:1-6 is not listed on IDEAS
    4. 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.
    5. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, pages 1254-1258.
    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 149-158, March.
    7. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Zhu Wang & Julian Wright, 2012. "Ad-valorem platform fees and efficient price discrimination," Working Paper 12-08, Federal Reserve Bank of Richmond.
    2. Ritz Robert A., 2009. "Cost Pass-Through under Delegation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-19, January.
    3. Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
    4. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    5. repec:ebl:ecbull:v:4:y:2008:i:11:p:1-11 is not listed on IDEAS
    6. Castle, Jennifer L. & Hendry, David F., 2009. "The long-run determinants of UK wages, 1860-2004," Journal of Macroeconomics, Elsevier, vol. 31(1), pages 5-28, March.
    7. Paolo Bertoletti, 2009. "On the output criterion for price discrimination," Economics Bulletin, AccessEcon, vol. 29(4), pages 2951-2956.

    More about this item

    Keywords

    Price Discrimination; Monopoly;

    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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