A Sufficient Statistics Approach for Welfare Analysis of Oligopolistic Third-Degree Price Discrimination

Abstract

This paper proposes a sufficient statistics approach to studying the welfare effects of third-degree price discrimination in differentiated oligopoly. Specifically, our sufficient conditions for price discrimination to increase or decrease social welfare simply entail a cross-market comparison of multiplications of such sufficient statistics as pass-through, conduct, and profit margin that are functions of first-order and second-order elasticities of the firm's demand. Notably, these results are derived under a general class of market demand, and can be readily be extended to accommodate heterogeneous firms. These features suggest that our approach has potential for conducting welfare analysis without a full specification of an oligopoly model.

Keywords: Third-Degree Price Discrimination, Oligopoly, Sufficient Statistics

JEL Classification: D21, D43, D60, L11, L13