Premium
THE WELFARE EFFECTS OF THIRD‐DEGREE PRICE DISCRIMINATION IN A DIFFERENTIATED OLIGOPOLY
Author(s) -
ADACHI TAKANORI,
MATSUSHIMA NORIAKI
Publication year - 2014
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12075
Subject(s) - economics , oligopoly , price discrimination , product differentiation , economic surplus , microeconomics , welfare , social welfare , competition (biology) , degree (music) , product (mathematics) , cournot competition , market economy , mathematics , ecology , physics , geometry , political science , acoustics , law , biology
This article examines the welfare effects of third‐degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the “strong” market (where the discriminatory price is higher than the uniform price) than in the “weak” market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely owing to an increase in the firms' profits in the case of linear demands . ( JEL D43, L11, L13)