Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry

V Bhaskar and Ted To

RAND Journal of Economics, 2004, vol. 35, issue 4, 762-776

Abstract: We analyze models of product differentiation with perfect price discrimination and free entry. With a fixed number of firms, and in the absence of coordination failures, perfect price discrimination provides incentives for firms to choose product characteristics in a socially optimal way. However, with free entry, the number of firms is always excessive. Our results apply to a large class of models of product differentiation. They also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of the principals.

Keywords: Production, Pricing, and Market Structure; Size Distribution of Firms (Concentration, Product Differentiation, Entry and Exit) Market Structure, Firm Strategy, and Market Performance: Oligopoly and Other Imperfect Markets; monopolistic competition; contestable markets Differentiation; Entry; Firm; Firms; Free Entry; Price Discrimination; Product Differentiation (search for similar items in EconPapers)
JEL-codes: L11 L13 (search for similar items in EconPapers)
Date: 2004
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