Imperfect price discrimination, market structure, and efficiency

Qihong Liu and Konstantinos Serfes ()

Canadian Journal of Economics, 2005, vol. 38, issue 4, 1191-1203

Abstract: We introduce a flexible third-degree price discrimination framework by modeling the information firms possess about consumers' locations (preferences) on the Salop circle as a partition. Higher information quality is translated into a partition refinement. In the limit, we obtain the perfect price discrimination paradigm. We show that the free-entry equilibrium number of firms exhibits a U-shape as a function of the quality of information. This implies that price discrimination generates the most efficient free-entry outcome.

JEL-codes: D43 L11 L43 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (15)

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