Third-Degree Price Discrimination in the Presence of Asymmetric Consumption Externalities

Ikeda, Takeshi; Nariu, Tatsuhiko
September 2009
Journal of Industry, Competition & Trade;Sep2009, Vol. 9 Issue 3, p251
Academic Journal
In this paper, we consider third-degree price discrimination in two markets in the presence of asymmetric consumption externalities; we establish that under plausible conditions, a firm reduces its price in the market with low price elasticity of demand. The firm can increase its profits by reducing the price for these consumers and enlarging the demand for other consumers, provided that positive consumption externalities exist. Moreover, we show that third-degree price discrimination enhances not only the firm’s profit but also total consumer surplus.


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