Premium
N onlinear P ricing and O ligopoly
Author(s) -
Stole Lars A.
Publication year - 1995
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1995.00529.x
Subject(s) - preference , oligopoly , microeconomics , competition (biology) , nonlinear pricing , economic surplus , quality (philosophy) , economics , price discrimination , product differentiation , social welfare , welfare , cournot competition , biology , market economy , philosophy , epistemology , political science , ecology , law
We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.