Competitive Price Discrimination

Mark Armstrong and John Vickers

RAND Journal of Economics, 2001, vol. 32, issue 4, 579-605

Abstract: We model firms as supplying utility directly to consumers. The equilibrium outcome of competition in utility space depends on the relationship pi(u) between profit and average utility per consumer. Public policy constraints on the "deals" firms may offer affect equilibrium outcomes via their effect on pi(u). From this perspective we examine the profit, utility; and welfare implications of price discrimination policies in an oligopolistic framework. We also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two-part tariffs. Copyright 2001 by the RAND Corporation.

Date: 2001
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