Market Foreclosure, Output and Welfare Under Second-Degree Price Discrimination
Economics Bulletin, Forthcoming
14 Pages Posted: 21 Dec 2018
Date Written: November 28, 2018
We compare second-degree price discrimination with uniform pricing using two linear demands. Our comparison shows that second-degree price discrimination can result in a welfare-enhancing market foreclosure (both markets are served under uniform pricing but one of them is excluded under second-degree price discrimination) because the resulting foreclosure can increase both the total output and the total surplus. The total surplus under second-degree price discrimination could also be lower without the foreclosure. We also contrast our results with well-known results under third-degree price discrimination.
Keywords: market foreclosure, welfare effects, second-degree price discrimination
JEL Classification: D42, D61, L11
Suggested Citation: Suggested Citation