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Competitive Differential Pricing

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Abstract
This paper analyzes welfare under differential versus uniform pricing across oligopoly makes that differ in costs of service. We establish necessary and sufficient conditions on demand properties—cross/own elasticities and curvature—for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always—including why profit can fall, unlike for monopoly—and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with ‘simple’ demands such as linear.

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  • Yongmin Chen & Jianpei Li & Marius Schwartz, 2018. "Competitive Differential Pricing," Working Papers gueconwpa~18-18-10, Georgetown University, Department of Economics, revised 11 May 2019.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-10
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    Cited by:

    1. Markus Dertwinkel‐Kalt & Christian Wey, 2023. "Third‐Degree Price Discrimination in Oligopoly when Markets are Covered," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 464-490, June.
    2. Andrew Rhodes & Jidong Zhou, 2022. "Personalized Pricing and Competition," Cowles Foundation Discussion Papers 2329, Cowles Foundation for Research in Economics, Yale University.
    3. Romain Lestage, 2021. "Input price discrimination and non-controlling vertical shareholding," Journal of Regulatory Economics, Springer, vol. 59(3), pages 226-250, June.
    4. Aguirre, Iñaki & Yenipazarli, Arda, 2022. "A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets," MPRA Paper 113746, University Library of Munich, Germany.
    5. Aguirre, Iñaki, 2019. "Oligopoly price discrimination, competitive pressure and total output," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-16.
    6. Adachi, Takanori, 2023. "A sufficient statistics approach for welfare analysis of oligopolistic third‐degree price discrimination," International Journal of Industrial Organization, Elsevier, vol. 86(C).
    7. Takanori ADACHI, 2022. "Recent Advances in the Theory of Third-Degree Price Discrimination: A Brief Survey," Discussion papers e-22-006, Graduate School of Economics , Kyoto University.
    8. Guo, Wen-Chung & Lai, Fu-Chuan, 2022. "Price discrimination under online–offline competition," Economics Letters, Elsevier, vol. 216(C).

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    More about this item

    Keywords

    Differential Pricing; Price Discrimination; Demand Curvature; Cross-Price Elasticity; Pass-Through; Oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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