Uniform pricing and social welfare
We re-examine the case for uniform pricing in a monopolistic third-degree price-discrimination setting by introducing differentiated costs. A profit-maximizing monopolist could then use price differentiation to reduce the production of the more costly goods, thereby decreasing average cost and increasing welfare. Indeed, monopolistic price differentiation can improve welfare and also aggregate consumer surplus even if, as in the benchmark linear case, total output does not increase. Accordingly, the welfare criterion based on total output fails and should be replaced by the computation of well-defined price indexes. These results possibly pave the way for a more optimistic assessment of monopolistic pricing.
|Date of creation:||Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Galera, Francisco & Zaratiegui, Jesus M., 2006.
"Welfare and output in third-degree price discrimination: A note,"
International Journal of Industrial Organization,
Elsevier, vol. 24(3), pages 605-611, May.
- Francisco Galera & JesÃºs M. Zaratiegui, 2003. "Welfare and Output in Third-Degree Price Discrimination: a Note," Faculty Working Papers 07/03, School of Economics and Business Administration, University of Navarra.
- Luís M. B. Cabral, 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, June.
- Schmalensee, Richard, 1981.
"Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination,"
American Economic Review,
American Economic Association, vol. 71(1), pages 242-47, March.
- Schmalensee, Richard., 1980. "Output and welfare implications of monopolistic third-degree price discrimination," Working papers 1095-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- 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.
- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
- Sofronis K. Clerides, 2004. "Price Discrimination with Differentiated Products: Definition and Identification," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 402-412, July.
- Layson, Stephen K, 1998. "Third-Degree Price Discrimination with Interdependent Demands," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 511-24, December.
- Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:1082. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.