Third-degree price discrimination, quality choice, and welfare

Takeshi Ikeda and Tsuyoshi Toshimitsu

Economics Letters, 2010, vol. 106, issue 1, 54-56

Abstract: Employing an endogenous quality choice model, we reconsider the effect on welfare of monopolistic third-degree price discrimination. We prove that price discrimination always enhances welfare, mainly because the quality improvement owing to price discrimination increases consumer surplus. Moreover, we show that third-degree price discrimination benefits all parties, including consumers in the higher priced market if the preference differences between markets are sufficiently large.

Keywords: Third-degree; price; discrimination; Endogenous; quality; choice; Vertically; differentiated; products; Monopoly (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (17)

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