Friday, June 8, 2018
Yongmin Chen (Department of Economics, University of Colorado at Boulder) ; Jianpei Li and Marius Schwartz (Department of Economics, Georgetown University) have an interesting paper on Competitive Differential Pricing.
ABSTRACT: This paper analyzes differential versus uniform pricing across oligopoly markets that differ in costs of service. We provide necessary and sufficient conditions on general properties of demand for differential pricing to raise or lower profit, consumer surplus, and total welfare, explain why differential pricing is generally beneficial but there are exceptions, and compare the findings to oligopoly third-degree price discrimination. Our conditions nest those for monopoly differential pricing, and are derived by evaluating when each of the welfare measures is convex in marginal cost. Our results help elucidate the welfare effects of prevalent constraints on cost-based differential pricing.