Price discrimination, competition and welfare

Working paper

Amonopolist in one market is also an output-setting oligopolist in a separate market with the same demand and cost conditions. Should it be allowed to set a price in its monopoly market that differs from the price in the competitive market? When there is a single rival the regulated firm under uniform pricing restricts its output in the competitive market so that its market share is one-third. Social welfare is higher with uniform pricing. Welfare is also higher with uniform pricing if there is more than one rival despite the regulated firm optimally choosing not to supply the competitive market. Uniform pricing may promote entry, and is socially preferred to discrimination in this case when demand is sufficiently convex. Similar results hold in a model where the competitive market has price-setting duopolists with differentiated products.

Authors: Cowan, S

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Place of publication: Oxford, UK
• Publication date: 2026-04-07
• Paper number: 1113
• Language: English
• Keywords: social welfare; monopoly; Cournot oligopoly