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Welfare of Price Discrimination and Market Segmentation in Duopoly

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  • Xianwen Shi
  • Jun Zhang

Abstract

We study welfare consequences of third-degree price discrimination and market segmentation in a duopoly market with captive and contested consumers. A market segmentation divides the market into segments that contain different proportions of captive and contested consumers. Firm-optimal segmentation divides the market into two segments and in each segment only one firm has captive consumers. In contrast to the existing literature with exogenous segmentation, price discrimination under firm-optimal segmentation unambiguously reduces consumer surplus for all markets. Consumer-optimal segmentation divides the market into a maximal symmetric segment and the remainder, and yields the lowest producer surplus among all segmentations.

Suggested Citation

  • Xianwen Shi & Jun Zhang, 2020. "Welfare of Price Discrimination and Market Segmentation in Duopoly," Working Papers tecipa-682, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-682
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    References listed on IDEAS

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    1. Anne-Katrin Roesler & Balázs Szentes, 2017. "Buyer-Optimal Learning and Monopoly Pricing," American Economic Review, American Economic Association, vol. 107(7), pages 2072-2080, July.
    2. S. Nageeb Ali & Greg Lewis & Shoshana Vasserman, 2019. "Voluntary Disclosure and Personalized Pricing," Papers 1912.04774, arXiv.org, revised Aug 2020.
    3. Maxim Ivanov, 2013. "Information revelation in competitive markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 337-365, January.
    4. Shota Ichihashi, 2019. "Online Privacy and Information Disclosure by Consumers," Staff Working Papers 19-22, Bank of Canada.
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    Cited by:

    1. Armstrong, Mark & Zhou, Jidong, 2019. "Consumer information and the limits to competition," CEPR Discussion Papers 14162, C.E.P.R. Discussion Papers.
    2. Zhou, Jidong, 2019. "Mixed Bundling in Oligopoly Markets," MPRA Paper 97432, University Library of Munich, Germany.

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    More about this item

    Keywords

    Price Discrimination; Market Segmentation; Information Design; Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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