What is it about?
In the presence of quality differences, we find that welfare may increase with price discrimination, relative to a uniform price, even if total quantity produced decreases.
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Why is it important?
The result has important implications in the design of policies that address whether price discrimination should be banned. In particular, it introduces the issue of quality differences, which could potentially reverse the commonly-accepted result that a quantity increase is a necessary condition for welfare to increase with price discrimnation.
Perspectives
The result in the paper should force us to think harder about the welfare consequences of price discrimination and consider perspectives that, while relevant in actual practice, are typically ignored.
Prof Pedro Mendi
Universidad de Navarra
Read the Original
This page is a summary of: QUALITY DIFFERENCES, THIRD-DEGREE PRICE DISCRIMINATION, AND WELFARE, Economic Inquiry, June 2016, Wiley,
DOI: 10.1111/ecin.12368.
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