Uniform Pricing versus Third-Degree Price Discrimination

Dirk Bergemann, Francisco Castro and Gabriel Weintraub
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Francisco Castro: ?
Gabriel Weintraub: Stanford U

Research Papers from Stanford University, Graduate School of Business

Abstract: We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly proï¬ ts. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.

Date: 2020-02
New Economics Papers: this item is included in nep-com, nep-des, nep-ind and nep-mic
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Working Paper: Uniform Pricing Versus Third-Degree Price Discrimination (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3860

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