Third-degree price discrimination versus uniform pricing

Dirk Bergemann, Francisco Castro and Gabriel Weintraub

Games and Economic Behavior, 2022, vol. 131, issue C, 275-291

Abstract: We compare the profit of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave profit functions (in the price space) and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly profits. This profit bound holds for any number of segments and prices that the seller might use under third-degree price discrimination. We establish that these conditions are tight and that weakening either common support or concavity can lead to arbitrarily poor profit comparisons even for regular or monotone hazard rate distributions.

Keywords: Third-degree price discrimination; Uniform price; Approximation; Concave profit function; Market segmentation (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Third-Degree Price Discrimination Versus Uniform Pricing (2021)
Working Paper: Third-degree Price Discrimination Versus Uniform Pricing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:131:y:2022:i:c:p:275-291

DOI: 10.1016/j.geb.2021.11.008

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