Monopoly price discrimination with constant elasticity demand
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This paper presents new results on the welfare effects of third-degree price discrimination under constant elasticity demand. We show that when both the share of the strong market under uniform pricing and the elasticity difference between markets are high enough, then price discrimination not only can increase social welfare but also consumer surplus. We also obtain new bounds on the welfare change for log-convex demands.
KeywordsMonopoly price discrimination Social welfare Constant elasticity demand
JEL ClassificationD42 L12 L13
Financial support from the Ministerio de Economía y Competitividad (ECO2012-31626), and from the Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged. We would like to thank Ilaski Barañano, Preston McAfee, Ignacio Palacios-Huerta and an anonymous referee for helpful comments.
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