Second degree price discrimination and natural monopoly

Alfons Weichenrieder

Bulletin of Economic Research, 2004, vol. 56, issue 2, 189-200

Abstract: This paper considers the efficiency of a contestable natural monopoly if consumers are heterogeneous and the monopolist can differentiate prices imperfectly. The paper shows that a “no‐distortion‐at‐the‐top” result, which is standard in models with restricted entry, may also appear in a contestable market. Depending on cost and demand structures, first best efficiency can also be a sustainable equilibrium. However, due to the existence of a continuum of equilibria, first best efficiency is not guaranteed. Most notably, even a stable “distortion‐at‐the‐top” result is possible.

Date: 2004
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https://doi.org/10.1111/j.1467-8586.2004.00196.x

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