Third-Degree Price Discrimination: A Clarification

14 Pages Posted: 29 Oct 2007 Last revised: 2 May 2008

Sylvain Weber

University of Neuchatel - Institute for Research in Economics (IRENE)

Cyril D. Pasche

University of Geneva - Department of Economics

Date Written: April 29, 2008

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.

Keywords: Monopoly, Price Discrimination, Kinked Demand

JEL Classification: A20, D42, L12

Suggested Citation

Weber, Sylvain and Pasche, Cyril D., Third-Degree Price Discrimination: A Clarification (April 29, 2008). Available at SSRN: https://ssrn.com/abstract=1024778 or http://dx.doi.org/10.2139/ssrn.1024778

Sylvain Weber (Contact Author)

University of Neuchatel - Institute for Research in Economics (IRENE) ( email )

A.-L. Breguet 2
Neuchatel, 2000
Switzerland
+41327181442 (Phone)

HOME PAGE: http://www2.unine.ch/irene/lang/en/collaborateurs/sylvain_weber

Cyril D. Pasche

University of Geneva - Department of Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41223798285 (Phone)
+41223798293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/pasche/pasche.html

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