A Sufficient Statistics Approach for Welfare Analysis of Oligopolistic Third-Degree Price Discrimination
63 Pages Posted: 24 Jul 2017 Last revised: 25 Jan 2022
Date Written: January 25, 2022
This paper proposes a sufficient statistics approach to welfare analysis of third-degree price discrimination in differentiated oligopoly. Specifically, our sufficient conditions for price discrimination to increase or decrease aggregate output, social welfare, and consumer surplus simply entail a cross-market comparison of multiplications of two or three of the sufficient statistics--pass-through, conduct, and profit margin--that are functions of first-order and second-order elasticities of the firm's demand. Notably, these results are derived under a general class of demand, and can be readily be extended to accommodate heterogeneous firms. These features suggest that our approach has potential for conducting welfare analysis without a full specification of an oligopoly model.
Keywords: Third-Degree Price Discrimination, Oligopoly, Sufficient Statistics
JEL Classification: D21, D43, D60, L11, L13
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