The Welfare Effects of Third‐Degree Price Discrimination in a Differentiated Oligopoly
14 Pages Posted: 9 May 2014
Date Written: July 2014
This article examines the welfare effects of third‐degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the “strong” market (where the discriminatory price is higher than the uniform price) than in the “weak” market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely owing to an increase in the firms' profits in the case of linear demands.
JEL Classification: D43, L11, L13
Suggested Citation: Suggested Citation