Welfare Effects of Third-Degree Price Discrimination: Ippolito Meets Schmalensee and Varian

Iñaki Aguirre

IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: Based on a pioneering work by Ippolito (1980) we construct a simple model wich allows the welfare effects of third-degree price discrimination to be well understood and explained. The decomposition of the change in welfare into a misallocation effect and an output effect has advantages over the well-established analysis by Schamalensee (1981) and Varian (1985). In particular, our approach provides a graphic analysis which clarifies the welfare analysis of third-degree price discrimination.

Date: 2011-10
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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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