Third-Degree Price Discrimination: A Clarification

Abstract:     
The objective of this paper is to assess how the marginal revenue of a monopoly should be plotted when the market is segmented between consumers with different demands, both in the discriminating and non-discriminating cases. The presentations offered by industrial organization textbooks concerning third-degree price discrimination are not always clear, and we believe this is due to the fact that the marginal revenue is different for both types of monopolies, even though the demands they face are absolutely identical. The quantity produced in equilibrium can therefore diverge significantly if price discrimination is feasible or not. Under certain circumstances, price discrimination may improve the situation of every market agent, producer as well as consumers.

Number of Pages in PDF File: 14

Keywords: Monopoly, Price Discrimination, Kinked Demand

JEL Classification: A20, D42, L12

working papers series