Third-degree Price Discrimination Versus Uniform Pricing

Third-degree Price Discrimination Versus Uniform Pricing

By:	Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University)
Abstract:	We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly proï¬ ts. This revenue bound obtains for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight, and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.
URL:	http://d.repec.org/n?u=RePEc:cwl:cwldpp:2213&r=com