Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria

V Bhaskar and Ted To

Industrial Organization from University Library of Munich, Germany

Abstract: We analyze models of product differentiation with perfect price discrimination and free entry. Although perfect price discrimination ensures efficient output decisions given product characteristics, coordination failures may prevent efficiency in the choice of product characteristics. More fundamentally, even if we have efficient product choices for a fixed number of firms, one always has excessive entry in free entry equilibrium. Our results apply to a large class of models of product differentiation including location models as well as representative consumer models of the demand for variety. These results also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of lobbyists.

Keywords: price discrimination; efficiency; free entry; product differentiation (search for similar items in EconPapers)
JEL-codes: D4 L1 L2 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2000-12-13
Note: Type of Document - LaTeX; prepared on IBM PC - PC-TEX; to print on any; pages: 22 + title
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0004011

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