Imperfect Price Discrimination, Market Structure and Efficiency

Liu, Qihong; Serfes, Konstantinos

doi:10.2139/ssrn.613023

Imperfect Price Discrimination, Market Structure and Efficiency

18 Pages Posted: 8 Nov 2004

See all articles by Qihong Liu

Qihong Liu

University of Oklahoma - Department of Economics

Konstantinos Serfes

Drexel University

There are 2 versions of this paper

Date Written: January 14, 2005

Abstract

We introduce a flexible framework by modeling the information firms possess about consumers' locations (preferences) on the Salop circle as a partition. Higher information quality is translated into a partition refinement. In the limit, we obtain the perfect price discrimination paradigm. We show that the free-entry equilibrium number of firms exhibits a U-shape as a function of the quality of information. This implies that some (but not too much) price discrimination yields the most efficient non-cooperative outcome.

Keywords: Free-entry, Price discrimination, Market structure, Efficiency

JEL Classification: D43, L11, L43

Suggested Citation: Suggested Citation

Liu, Qihong and Serfes, Konstantinos, Imperfect Price Discrimination, Market Structure and Efficiency (January 14, 2005). Available at SSRN: https://ssrn.com/abstract=613023 or http://dx.doi.org/10.2139/ssrn.613023