Third-Degree Price Discrimination, Heterogeneous Markets and Exclusion

14 Pages Posted: 20 Jul 2001

See all articles by Yong He

Yong He

REPD, Universite Pierre-Mendes France, and ENSGI-F

Guang-Zhen Sun

Monash University - Department of Economics; Max Planck Institute for Research Into Economic Systems

Abstract

This short paper analyzes the effect of heterogeneity of markets in terms of income on the exclusion of markets under uniform price by considering linear demand curves in all markets. We show that more markets (and consumers) are excluded the higher are the inter-market income differences, and that adding markets, even with lower reservation prices than in existing ones, helps to decrease the price and thus make more markets served. The multiple market case turns out to be not an insignificant extension of the two-market case. We also address the welfare implications of the price discrimination and show that discrimination could be beneficial or inefficient, crucially depending on the inter-market wealth distribution.

Keywords: Exclusion, Heterogeneous markets, Marshallian welfare, Output effect, Third-degree price discrimination, Uniform price

JEL Classification: D42, L12

Suggested Citation

He, Yong and Sun, Guang-Zhen, Third-Degree Price Discrimination, Heterogeneous Markets and Exclusion. Available at SSRN: https://ssrn.com/abstract=276929 or http://dx.doi.org/10.2139/ssrn.276929

Yong He

REPD, Universite Pierre-Mendes France, and ENSGI-F ( email )

Grenoble
France

Guang-Zhen Sun (Contact Author)

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia
61-3-99052409 (Phone)
61-3-99055476 (Fax)

Max Planck Institute for Research Into Economic Systems

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

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