Can Price Discrimination Be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation

Topics in Economic Analysis & Policy, Vol. 3, No. 1, Article 12

Posted: 23 Oct 2003

See all articles by Ofer H. Azar

Ofer H. Azar

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management

Abstract

The article examines a differentiated-products duopoly model where the firms make entry decisions to two markets and then choose prices. The effects of product differentiation and entry costs are analyzed in two games: with and without price discrimination between the markets. Allowing price discrimination encourages more entry and tends to reduce prices and profits and to increase consumer welfare in both markets. The model suggests that firms might be better off if they agree not to price discriminate between different markets. It also suggests that when the market is not a natural monopoly, regulators should consider the effects of universal service requirements on entry before adopting them, because entry might be discouraged by such requirements, leading to less competitive markets.

Keywords: Cross-Market Price Constraints, Price Discrimination, Regulation, Product Differentiation, Entry, Duopoly, Universal Service Requirements

JEL Classification: L13, D43, L50, L11

Suggested Citation

Azar, Ofer H., Can Price Discrimination Be Bad for Firms and Good for All Consumers? A Theoretical Analysis of Cross-Market Price Constraints with Entry and Product Differentiation. Topics in Economic Analysis & Policy, Vol. 3, No. 1, Article 12. Available at SSRN: https://ssrn.com/abstract=458381

Ofer H. Azar (Contact Author)

Ben-Gurion University of the Negev - Guilford Glazer Faculty of Business and Management ( email )

P.O. Box 653
Beer-Sheva, 84105
Israel
+972 8 6472675 (Phone)
+972 8 6477691 (Fax)

HOME PAGE: http://www.oferazar.com

Register to save articles to
your library

Register

Paper statistics

Abstract Views
651
PlumX Metrics