Welfare-increasing third-degree price discrimination

Working paper

The welfare and output effects of monopoly third-degree price discrimination are analyzed when inverse demand functions are parallel. Welfare is higher with discrimination than with a uniform price when demand functions are derived from the logistic distribution, and from a more general class of distributions. The sufficient condition in Varian (1985) for a welfare increase holds for these demand functions. Total output is higher with discrimination for a large set of demand functions including those derived from strictly log-concave distributions with increasing cost pass-through, such as the normal, logistic and extreme value, and standard log-convex demands.

Authors: Cowan, S

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2013-04-22
• Paper number: 652
• Keywords: social welfare; output; monopoly; third-degree price discrimination