The Degree of Distortions under Second-Degree Price Discrimination

14 Pages Posted: 22 May 2015 Last revised: 29 Oct 2015

See all articles by Yong Chao

Yong Chao

University of Louisville - College of Business - Department of Economics

Babu Nahata

University of Louisville - College of Business - Department of Economics

Date Written: October 28, 2015

Abstract

We consider second-degree price discrimination for two types of consumers. When the net-of-cost valuation functions cross at least once at some positive quantity, it is always optimal to serve both types of consumers. Moreover, the type with the higher valuation peak always gets the socially efficient quantity. The sufficient and necessary condition for the overall efficiency is the peak of each type’s net-of-cost valuation is above the other type’s net-of-cost valuation at that peak quantity. For two general linear demands, we quantify the degree of efficiency, upward and downward distortions.

Keywords: second-degree price discrimination, overall efficiency, upward distortion, downward distortion

JEL Classification: D42, L12

Suggested Citation

Chao, Yong and Nahata, Babu, The Degree of Distortions under Second-Degree Price Discrimination (October 28, 2015). Economics Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2609090 or http://dx.doi.org/10.2139/ssrn.2609090

Yong Chao (Contact Author)

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States
(502)852-3573 (Phone)
(502)852-7672 (Fax)

HOME PAGE: http://yongchao.us

Babu Nahata

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States
502-852-4864 (Phone)

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