Uniform Pricing Versus Third-Degree Price Discrimination

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 2213r, 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 holds 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: 17 pages
Date: 2019-12, Revised 2020-02
New Economics Papers: this item is included in nep-com, nep-des, nep-gth and nep-mic
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Working Paper: Uniform Pricing versus Third-Degree Price Discrimination (2020)
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