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Uniform pricing and social welfare

Author

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  • Bertoletti, Paolo

Abstract

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.

Suggested Citation

  • Bertoletti, Paolo, 2005. "Uniform pricing and social welfare," MPRA Paper 1082, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1082
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    File URL: https://mpra.ub.uni-muenchen.de/1082/1/MPRA_paper_1082.pdf
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    References listed on IDEAS

    as
    1. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    2. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, January.
    6. Schwartz, Marius, 1990. "Third-Degree Price Discrimination and Output: Generalizing a Welfare Result," American Economic Review, American Economic Association, vol. 80(5), pages 1259-1262, December.
    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 1254-1258, December.
    8. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    9. Layson, Stephen K, 1998. "Third-Degree Price Discrimination with Interdependent Demands," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 511-524, December.
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    Citations

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    Cited by:

    1. Escañuela Romana, Ignacio, 2018. "La elasticidad precio de la demanda de transporte aéreo de pasajeros en los Estados Unidos
      [The price elasticity of demand for air travel in the United States]
      ," MPRA Paper 83572, University Library of Munich, Germany.
    2. DIAKITE Daouda & SEMENOV Aggey & THOMAS Alban, 2006. "Social Pricing and Water Provision in Côte d'Ivoire," LERNA Working Papers 06.14.207, LERNA, University of Toulouse.

    More about this item

    Keywords

    uniform pricing; third-degree price discrimination; welfare bounds; price and quantity indexes;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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