Antitrust & Competition Policy Blog

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

Wednesday, July 22, 2020

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

https://lawprofessors.typepad.com/antitrustprof_blog/2020/07/third-degree-price-discrimination-versus-uniform-pricing.html

| Permalink

Comments

Post a comment