Third-degree Price Discrimination in the Presence of Congestion Externality

Achim I. Czerny and Anming Zhang
Additional contact information
Achim I. Czerny: VU University Amsterdam, the Netherlands
Anming Zhang: The University of British Columbia, Canada

No 14-140/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper analyzes third-degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served. The model features the business-passenger and leisure-passenger markets where business passengers exhibit a higher time valuation, and a less price-elastic demand, than leisure passengers. Our main result is the identification of the time-valuation effect of price discrimination, which can work in the opposite direction as the well-known output effect on welfare. This time-valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output.

Keywords: Price discrimination; congestion; time valuation; monopoly; airline (search for similar items in EconPapers)
JEL-codes: D42 L93 (search for similar items in EconPapers)
Date: 2014-10-23
New Economics Papers: this item is included in nep-com and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://papers.tinbergen.nl/14140.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20140140

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().