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 Potters 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, = (4 -1 295 0 = 1 5 0 p=2, = (2 -1 292 0 0 = 2 0 0 1. Discrimination: p a =2, p b =4, = 1 0 0 +1 5 0 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....
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monopoly2 - Third degree price discrimination Welfare...

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