Competitive differential pricing

Chen, Yongmin and Li, Jianpei and Schwartz, Marius (2019): Competitive differential pricing.

Abstract

This paper analyzes welfare under differential versus uniform pricing across oligopoly markets that differ in costs of service. We establish necessary and sufficient conditions on demand properties---cross/own elasticities and curvature---for differential pricing by symmetric firms to raise aggregate consumer surplus, profit, and total welfare. The analysis reveals intuitively why differential pricing is generally beneficial though not always---including why profit can fall, unlike for monopoly---and why it is more beneficial than oligopoly third-degree price discrimination. When firms have asymmetric costs, however, differential pricing can reduce profit or consumer surplus even with `simple' demands such as linear.

• Item Type: MPRA Paper
• Language: English
• Keywords: differential pricing, price discrimination, demand curvature, cross-price elasticity, pass-through, oligopoly
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies

References

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