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Imperfect Price Discrimination, Market Structure and Efficiency

Qihong Liu
University of Oklahoma - Department of Economics

Konstantinos Serfes
Drexel University - Department of Economics & International Business

January 14, 2005

Abstract:
We introduce a flexible framework by modeling the information firms possess about consumers' locations (preferences) on the Salop circle as a partition. Higher information quality is translated into a partition refinement. In the limit, we obtain the perfect price discrimination paradigm. We show that the free-entry equilibrium number of firms exhibits a U-shape as a function of the quality of information. This implies that some (but not too much) price discrimination yields the most efficient non-cooperative outcome.

Keywords: Free-entry, Price discrimination, Market structure, Efficiency

JEL Classifications: D43, L11, L43

Working Paper Series

Date posted: November 08, 2004 ; Last revised: November 30, 2005

Suggested Citation

Liu, Qihong and Serfes, Konstantinos, Imperfect Price Discrimination, Market Structure and Efficiency (January 14, 2005). Available at SSRN: http://ssrn.com/abstract=613023

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Contact Information

Qihong Liu (Contact Author) University of Oklahoma - Department of Economics ( email ) 729 Elm Avenue Norman, OK 73019-2103 United States 405-325-5846 (Phone) 405-325-5842 (Fax)
Konstantinos Serfes Drexel University - Department of Economics & International Business ( email ) 3141 Chestnut St. Philadelphia, PA 19104 United States 215-895-6816 (Phone) 215-895-6975 (Fax)