The Welfare Effects of Third‐Degree Price Discrimination in a Differentiated Oligopoly

14 Pages Posted: 9 May 2014

See all articles by Takanori Adachi

Takanori Adachi

Kyoto University - Graduate School of Management; Kyoto University - Graduate School of Economics

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2014

Abstract

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

Adachi, Takanori and Matsushima, Noriaki, The Welfare Effects of Third‐Degree Price Discrimination in a Differentiated Oligopoly (July 2014). Economic Inquiry, Vol. 52, Issue 3, pp. 1231-1244, 2014, Available at SSRN: https://ssrn.com/abstract=2434885 or http://dx.doi.org/10.1111/ecin.12075

Takanori Adachi (Contact Author)

Kyoto University - Graduate School of Management ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Kyoto University - Graduate School of Economics ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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