Welfare of Competitive Price Discrimination with Captive Consumers

Yanlin Chen, Xianwen Shi and Jun Zhang

American Economic Journal: Microeconomics, 2026, vol. 18, issue 3, 203-43

Abstract: We study the welfare effects of price discrimination in a duopoly with both captive and contested consumers. Using a unified information design approach, we characterize the best and worst market segmentations for producer surplus, consumer surplus, and social surplus. The firm-optimal segmentation, which divides the market into two nested segments, consistently reduces consumer welfare relative to uniform pricing. The consumer-optimal segmentation, which divides the market into a symmetric segment and a nested segment, may sometimes yield a Pareto improvement but does not necessarily coincide with the social-optimal segmentation.

JEL-codes: D43 D83 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mic.20230234

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