Pass-Through as an Economic Tool -- On Second Derivatives, Social Incidence, and Price Discrimination
15 Pages Posted: 4 Jul 2019
Date Written: July 2, 2019
Weyl and Fabinger (2013) show that the social incidence of competition, and the output and welfare effects of third-degree price discrimination, can be analyzed by considering the hypothetical entrance of exogenous quantity into a market. The formulas they use for this purpose, however, are correct only for marginal changes in exogenous quantity starting at zero or if demand functions are linear. We show how using the correct formulas affects the social incidence of competition calculations and sheds new light on the output and welfare effects of third-degree price discrimination in oligopoly markets.
Keywords: pass-through, third-degree price discrimination, social incidence of competition
JEL Classification: D00, D42, D43, L00, L13
Suggested Citation: Suggested Citation