Third-Degree Price Discrimination in Oligopoly When Markets are Covered

23 Pages Posted: 28 Dec 2020

See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

Frankfurt School of Finance & Management

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: 2020

Abstract

We analyze oligopolistic third-degree price discrimination relative to uniform pricing when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm’s Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm’s relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the gain in consumer surplus and loss in firms’ profits from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).

JEL Classification: D430, L130, L410, K210

Suggested Citation

Dertwinkel-Kalt, Markus and Wey, Christian, Third-Degree Price Discrimination in Oligopoly When Markets are Covered (2020). CESifo Working Paper No. 8785, Available at SSRN: https://ssrn.com/abstract=3754676

Markus Dertwinkel-Kalt (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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