Monday, August 5, 2013
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.