Monopolistic Competition, Price Discrimination and Welfare

9 Pages Posted: 14 Jun 2018  

Youping Li

East China University of Science and Technology (ECUST)

Jie Shuai

Zhongnan University of Economics and Law

Date Written: May 30, 2018

Abstract

This paper studies third degree price discrimination in a monopolistically competitive market. When the number of firms is fixed, price discrimination raises firm profit and reduces consumer welfare relative to uniform pricing. In the long run, the equilibrium product variety under price discrimination is always excessive compared with the social optimum, whereas under uniform pricing there may be too few. Except when, under rare circumstances, uniform pricing causes too little entry, a ban on price discrimination leads to enhanced consumer and social welfare.

Keywords: Third Degree Price Discrimination, Monopolistic Competition, Welfare

JEL Classification: L1, D4

Suggested Citation

Li, Youping and Shuai, Jie, Monopolistic Competition, Price Discrimination and Welfare (May 30, 2018). Available at SSRN: https://ssrn.com/abstract=3187185 or http://dx.doi.org/10.2139/ssrn.3187185

Youping Li (Contact Author)

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

Jie Shuai

Zhongnan University of Economics and Law ( email )

182 Nanhu Ave.
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

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