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Third-degree price discrimination in oligopoly when markets are covered

Markus Dertwinkel-Kalt and Christian Wey ()

No 336, DICE Discussion Papers from University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing, when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the consumer surplus gain from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).

Keywords: Third-Degree Price Discrimination; Uniform Pricing; Harmonic Mean Formula; Covered Demand (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 K21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-law, nep-mic, nep-ore and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:336

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