Comparison between Second and Third Degree Price Discrimination

10 Pages Posted: 25 May 2006

See all articles by Babu Nahata

Babu Nahata

University of Louisville - College of Business - Department of Economics

Sergey G. Kokovin

Novosibirsk State University - Department of Economics

Evegeny Zhelobodko

Novosibirsk State University - Department of Economics

Date Written: April 2006

Abstract

This pedagogical note discusses the differences between second and third-degree price discrimination. The comparison uses four important factors, namely, market segmentation, information about consumers, profit maximization and social welfare. The comparison shows that while market segmentation is a prerequsite for third-degree, it is an equilibrium outcome in second-degree price discrimination. The profit maximization problem is unconstrained under third-degree but it is constrained under second-degree. Both deadweight loss and consumer surplus are positive under third-degree, but they both can be zero under second-degree and the social surplus is maximum.

Keywords: price discrimination, market segmentation, social welfare

JEL Classification: A22, D42, L11, M21

Suggested Citation

Nahata, Babu and Kokovin, Sergey G. and Zhelobodko, Evegeny, Comparison between Second and Third Degree Price Discrimination (April 2006). Available at SSRN: https://ssrn.com/abstract=904383 or http://dx.doi.org/10.2139/ssrn.904383

Babu Nahata (Contact Author)

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States
502-852-4864 (Phone)

Sergey G. Kokovin

Novosibirsk State University - Department of Economics ( email )

2 Pirogova Street
Novosibirsk 630090
Russia

Evegeny Zhelobodko

Novosibirsk State University - Department of Economics ( email )

2 Pirogova Street
Novosibirsk 630090
Russia

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