Competitive differential pricing

Competitive differential pricing

By:	Chen, Yongmin; Li, Jianpei; Schwartz, Marius
Abstract:	This paper analyzes welfare under differential versus uniform pricing across oligopoly markets that differ in costs of service. We establish necessary and sufficient conditions on demand properties---cross/own elasticities and curvature---for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always---including why profit can fall, unlike for monopoly---and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with `simple' demands such as linear.
URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:94381&r=com