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Third‐degree Price Discrimination with Fairness‐concerned Consumers
Author(s) -
Okada Tomohisa
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12041
Subject(s) - price discrimination , economics , monopolistic competition , microeconomics , welfare , inequality , social welfare , inequity aversion , price setting , degree (music) , monopoly , market economy , mathematical analysis , mathematics , political science , law , physics , acoustics
This paper studies monopolistic third‐degree price discrimination, incorporating consumers' fairness concerns: discriminatory pricing antagonizes consumers and may reduce their demand. In contrast to the findings in previous studies, we show that consumers' concerns regarding price inequalities may deter discriminatory pricing by monopolists. Furthermore, a strong aversion to unfair pricing may improve social welfare compared with the situation in which consumers do not perceive price discrimination as unfair. Conversely, if the disutility from price inequality is not sufficiently large, social welfare decreases.