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Market foreclosure, output and welfare under second-degree price discrimination

Yong Chao () and Babu Nahata ()
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Babu Nahata: University of Louisville

Economics Bulletin, 2018, vol. 38, issue 4, 2116-2127

Abstract: We compare second-degree price discrimination with uniform pricing using two linear demands, with and without the Spence-Mirrlees condition. We find that second-degree price discrimination can result in a welfare-enhancing market foreclosure (one market is excluded under second-degree price discrimination when both markets would be served under uniform pricing) because the resulting foreclosure can increase both the total output and the total surplus. Moreover, the total surplus under second-degree price discrimination could also be lower without the foreclosure. Our results are in stark contrast with the well-known results related to output and welfare effects under third-degree price discrimination.

Keywords: market foreclosure; welfare effects; second-degree price discrimination (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2018-12-02
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