Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment

Kenneth Corts

RAND Journal of Economics, 1998, vol. 29, issue 2, 306-323

Abstract: Price discrimination by imperfectly competitive firms may intensify competition, leading to lower prices for all consumers; the tradeoff of consumer groups' welfare that is characteristic of monopolistic discrimination need not arise. This escalation of competition may make firms worse off, and as a result firms may wish to avoid the discriminatory outcome. Under conditions similar to those in which unambiguous price and welfare effects may arise, unilateral commitments not to price discriminate - including the adoption of everyday low pricing or no-haggle policies - may raise firm profits by softening price competition.

Date: 1998
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