Output and Welfare Implications of Oligopolistic Third-Degree Price Discrimination

45 Pages Posted: 24 Jul 2017 Last revised: 15 Aug 2019

See all articles by Takanori Adachi

Takanori Adachi

Nagoya University - Graduate School of Economics

Michal Fabinger

University of Tokyo - Graduate School of Economics

Date Written: August 14, 2019

Abstract

Using estimable concepts, this paper provides sufficient conditions for third-degree price discrimination to raise or lower aggregate output, social welfare, and consumer surplus under differentiated oligopoly when all discriminatory markets are open even without price discrimination. Specifically, we permit general demand functions and cost differences across separate markets, and show that our sufficient conditions entail a cross-market comparison of multiplications of two or three of the following key endogeneous variables with economic interpretation: pass-through value, market power index, and markup value. Notably, our results based on these "sufficient statistics" can readily be extended to allow heterogeneous firms, suggesting that they would be used as a building block for empirical study of third-degree price discrimination and welfare.

Keywords: Third-Degree Price Discrimination, Differentiated Oligopoly, Social Welfare, Pass-Through; Sufficient Statistics

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

Suggested Citation

Adachi, Takanori and Fabinger, Michal, Output and Welfare Implications of Oligopolistic Third-Degree Price Discrimination (August 14, 2019). Available at SSRN: https://ssrn.com/abstract=3006421 or http://dx.doi.org/10.2139/ssrn.3006421

Takanori Adachi (Contact Author)

Nagoya University - Graduate School of Economics ( email )

1 Furo-cho
Chikusa-ku
Nagoya, 464-8601
Japan

HOME PAGE: http://www.soec.nagoya-u.ac.jp/~adachi.t/

Michal Fabinger

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

HOME PAGE: http://sites.google.com/site/fabinger/

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