Uniform pricing and social welfare
Paolo Bertoletti ()
MPRA Paper from University Library of Munich, Germany
We re-examine the case for uniform pricing in a monopolistic third-degree price-discrimination setting by introducing differentiated costs. A profit-maximizing monopolist could then use price differentiation to reduce the production of the more costly goods, thereby decreasing average cost and increasing welfare. Indeed, monopolistic price differentiation can improve welfare and also aggregate consumer surplus even if, as in the benchmark linear case, total output does not increase. Accordingly, the welfare criterion based on total output fails and should be replaced by the computation of well-defined price indexes. These results possibly pave the way for a more optimistic assessment of monopolistic pricing.
Keywords: uniform pricing; third-degree price discrimination; welfare bounds; price and quantity indexes (search for similar items in EconPapers)
JEL-codes: D11 D42 L51 (search for similar items in EconPapers)
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