Third-degree Price Discrimination Versus Uniform Pricing
Dirk Bergemann (),
Francisco Castro and
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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
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
New Economics Papers: this item is included in nep-com, nep-des, nep-ind, nep-mic and nep-ore
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Working Paper: Third-degree Price Discrimination Versus Uniform Pricing (2020)
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