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Third-degree Price Discrimination Versus Uniform Pricing

Dirk Bergemann (), Francisco Castro and Gabriel Weintraub
Additional contact information
Francisco Castro: Anderson School of Management, UCLA
Gabriel Weintraub: Graduate School of Business, Stanford University

No 2213, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We compare the revenue 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 revenue functions and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly profits. This revenue bound obtains for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight, and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons.

Keywords: First Degree Price Discrimination; Third Degree Price Discrimination; Uniform Price; Approximation; Concave Demand Function; Market Segmentation (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2019-12
New Economics Papers: this item is included in nep-com, nep-des, nep-ind, nep-mic and nep-ore
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