Uniform pricing and social welfare

Bertoletti, Paolo (2005): Uniform pricing and social welfare.

Abstract

We re-examine the case for uniform pricing in a monopolistic third-degree price-discrimination setting by introducing differentiated costs. A profit-maximizing monopolist could then use price differentiation to reduce the production of the more costly goods, thereby decreasing average cost and increasing welfare. Indeed, monopolistic price differentiation can improve welfare and also aggregate consumer surplus even if, as in the benchmark linear case, total output does not increase. Accordingly, the welfare criterion based on total output fails and should be replaced by the computation of well-defined price indexes. These results possibly pave the way for a more optimistic assessment of monopolistic pricing.

• Item Type: MPRA Paper
• Institution: Dipartimento di Economia Politica e Metodi quantitativi, University of Pavia
• Language: English
• Keywords: uniform pricing; third-degree price discrimination; welfare bounds; price and quantity indexes
• Subjects: L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D42 - Monopoly

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