Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, August 5, 2013

Welfare-increasing third-degree price discrimination

Posted by D. Daniel Sokol

Simon Cowan (Oxford) has posted Welfare-increasing third-degree price discrimination.

ABSTRACT: The welfare and output effects of monopoly third-degree price discrimination are analyzed when inverse demand functions are parallel. Welfare is higher with discrimination than with a uniform price when demand functions are derived from the logistic distribution, and from a more general class of distributions. The sufficient condition in Varian (1985) for a welfare increase holds for these demand functions. Total output is higher with discrimination for a large set of demand functions including those derived from strictly log-concave distributions with increasing cost pass-through, such as the normal, logistic and extreme value, and standard log-convex demands.

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