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On the inefficiency of perfect price discrimination

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  • Bejan, Camelia

Abstract

In a general equilibrium model with at least three goods, a perfectly price-discriminating monopoly (PDM) selects an inefficient production plan even if consumers are homogeneous, their preferences are representable by quasi-linear utilities, and their characteristics are known to the monopolist. In the same setting, regulation via a two-part tariff induces an efficient equilibrium allocation.

Suggested Citation

  • Bejan, Camelia, 2021. "On the inefficiency of perfect price discrimination," Economics Letters, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:ecolet:v:208:y:2021:i:c:s016517652100361x
    DOI: 10.1016/j.econlet.2021.110084
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    References listed on IDEAS

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    1. Birgit Grodal & Egbert Dierker, 1999. "The price normalization problem in imperfect competition and the objective of the firm," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 257-284.
    2. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654, Elsevier.
    3. Rajiv Vohra, 1990. "On the Inefficiency of Two-Part Tariffs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 415-438.
    4. Walter Y. Oi, 1971. "A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(1), pages 77-96.
    5. Camelia Bejan, 2008. "The objective of a privately owned firm under imperfect competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(1), pages 99-118, October.
    6. V. Bhaskar & Ted To, 2004. "Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 762-776, Winter.
    7. Leeson, Peter T. & Sobel, Russell S., 2008. "Costly price discrimination," Economics Letters, Elsevier, vol. 99(1), pages 206-208, April.
    8. Aaron S. Edlin & Mario Epelbaum & Walter P. Heller, 1998. "Is Perfect Price Discrimination Really Efficient?: Welfare and Existence in General Equilibrium," Econometrica, Econometric Society, vol. 66(4), pages 897-922, July.
    9. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
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    Cited by:

    1. Bejan, Camelia, 2024. "On the shareholders versus stakeholders debate," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 68-88.

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    More about this item

    Keywords

    Perfect price discrimination; Inefficiency; Monopoly; Regulation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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