Third Degree Price Discrimination and Price Elasticities PDF Download
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Author: Thomas D. Jeitschko
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
According to conventional wisdom, if a monopolist operates in two separate markets whose respective demand functions can be ordered by elasticity, he will charge more on the market with the less elastic demand. In this paper we debunk the widespread canard that this follows from the first order profit maximization conditions. It is shown that, on the other hand, an inverse relationship between price and elasticity follows--with some qualifications--from the properties of the star partial ordering applied to the two demand functions. A number of related results are also given.
Author: Thomas D. Jeitschko
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
According to conventional wisdom, if a monopolist operates in two separate markets whose respective demand functions can be ordered by elasticity, he will charge more on the market with the less elastic demand. In this paper we debunk the widespread canard that this follows from the first order profit maximization conditions. It is shown that, on the other hand, an inverse relationship between price and elasticity follows--with some qualifications--from the properties of the star partial ordering applied to the two demand functions. A number of related results are also given.
Author: Tong Zhang
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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Book Description
We relax two common assumptions in the Hotelling model with third-degree price discrimination: inelastic demand and exogenously assumed price discrimination. Based on the constant elasticity of substitution (CES) representative consumer model, we allow firms to endogenously choose whether to acquire consumer information and price discriminate. We find that when the information cost is sufficiently low, there exist two symmetric sub-game perfect Nash equilibria irrespective of the demand elasticity: both firms acquiring information and price discriminating, and neither firm acquiring information and charging a uniform price. This implies that the widely discussed prisoners' dilemma, in which both firms are exogenously assumed to price discriminate, is not in fact a dilemma. A comparison of social welfare shows that when the demand elasticity is large enough, price discrimination improves social welfare. This is in contrast to the finding -- price discrimination harms social welfare -- in the existing literature assuming perfect inelastic demand.
Author: Richard Schmalensee
Publisher: North Holland
ISBN:
Category : Business & Economics
Languages : en
Pages : 1002
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Book Description
Determinants of firm and market organization; Analysis of market behavior; Empirical methods and results; International issues and comparision; government intervention in the Marketplace.
Author: Youping Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This note studies third degree price discrimination in intermediate good markets. I show that whether a more efficient downstream firm is charged a higher or lower price than a less efficient firm depends on the shape of the demand function. Different from the case in which final market demand is linear, the usual assumption in the literature, constant elasticity demand, for example, results in a more efficient firm's receiving a discount.
Author: Charles Adams
Publisher:
ISBN:
Category :
Languages : en
Pages : 7
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Book Description
The paper points up limitations in the standard undergraduate treatment of third-degree price discrimination by monopolists. While such treatments allude to qualitative distinctions between higher and lower priced alternatives, failure to capture those distinctions in underlying cost and demand structures can result in only partial and possibly misleading conclusions about the nature and consequences of price discrimination. Building on earlier work in the derivation of quality-differentiated demand (see SSRN 'https://ssrn.com/abstract=2576773' https://ssrn.com/abstract=2576773 and 'https://ssrn.com/abstract=3107103' https://ssrn.com/abstract=3107103), the paper compares the standard analysis of price discrimination with one that explicitly accounts for monopoly power in manipulating quality choices. The example provided illustrates the potential for substantially greater profits and greater efficiency losses by forcing some groups of consumers into suboptimal quality choices once quality variations are explicitly accounted for.
Author: Patrick M. Emerson
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
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Author: George Norman
Publisher: Edward Elgar Publishing
ISBN:
Category : Business & Economics
Languages : en
Pages : 624
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Book Description
This volume brings together significant articles which have appeared between 1971 and 1997, analyzing the application and effects of price discrimination.
Author: Dirk Bergemann
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Edward J. Lopez
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Applied work in price discrimination often treats demand curves among multiple market segments as algebraically additive. Yet the welfare effects of multi-market (third degree) price discrimination depend on the method by which demand segments are added. Treating demands as geometrically additive yields the well known result that discrimination absent an increase in production diminishes Marshallian surplus. But if demands are treated as algebraically additive then discrimination increases welfare relative to uniform pricing. Quantity is identical in the three cases, so the effect is not due to market opening. Nor is the effect due to scale economies since marginal cost is assumed constant. Profit is always greater under discrimination, so the effect is due to distributional changes in consumer surplus. The model is restricted to linear demands and constant marginal cost but can be generalized for future work and policy analysis.
Author: Youngsun Kwon
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper solves a simple model of third-degree price discrimination assuming two independent linear demands and discusses the effects of price discrimination on monopoly profit, consumer surplus, and social welfare. In addition, using a simple model, this paper shows that the probability that price discrimination raises social welfare increases as the preferences or incomes of consumer groups become more heterogeneous. The virtual aggregated demand curve of the price-discriminating monopoly, corresponding to its aggregated marginal revenue curve, is derived. The curve is non-linear and lies above the aggregated demand curve of simple monopoly. The results of this paper may be used to explain to students the effects of third-degree price discrimination on market outcomes.
