monopoly2

monopoly2 - Third degree price discrimination Welfare...

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Unformatted text preview: Third degree price discrimination Welfare Analysis Third-degree price discrimination and welfare ¡ Does third-degree price discrimination reduce welfare? ¢ not the same as being “fair” ¢ relates solely to efficiency ¢ so consider impact on total surplus ¡ What happened in Harry Potter’s example? ¢ Without discrimination both market served ¢ With discrimination price goes up in US and down in Europe. Total quantity unchanged ¢ Welfare? Example 1 – Welfare decreases Two markets ¡ Market A: ¢ All identical ¢ N a =100 consumers ¢ Reservation value p a =2 ¡ Market B: ¢ Two types. ¢ N 1 =N 2 = 50 of each ¢ Reservation values p 1 =4, p 2 = 2. ¡ Constant mg. cost c= 1. 1. No discrimination: p=4, π=(4−1)∗50=150 p=2, π=(2−1)∗200 = 200 2. Discrimination: p a =2, p b =4, π=100+150 Less consumers are served Example 2 – Welfare increases Two markets ¡ Market A: ¢ All identical ¢ N a =100 consumers ¢ Reservation value p a =4 ¡ Market B: ¢ Two types. ¢ N 1 =20, N 2 = 80. ¢ Reservation values p 1 =4, p 2 = 2. ¡ Constant mg. cost c= 1. 1. No discrimination: p=4, π=(4−1)∗120=360 p=2, π=(2−1)∗200 =200 2. Discrimination: p a =4, p b =2, π=300+100 • Total output increases • More consumers served Price discrimination and welfare...
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monopoly2 - Third degree price discrimination Welfare...

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