When does third-degree price discrimination reduce social welfare, and when does it raise it?
Sufficient conditions are developed for third-degree price discrimination by a monopolist serving all markets to reduce and raise social welfare.� Welfare falls if the demand function in the market whose price is higher with discrimination is at least as convex as that in the other market (at the non-discriminatory price).� Welfare rises if inverse demand in the low-price market is more convex (at the discriminatory price) than inverse demand in the high-price market and the discriminatory prices are close together, so the cost of misallocation is less than the benefit of higher output.
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