Third-Degree Price Discrimination in the Presence of Asymmetric Consumption Externalities |
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| Authors: | Takeshi Ikeda Tatsuhiko Nariu |
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| Institution: | (1) School of Economics, Kobe International University, 9-1-6, Koyo-cho naka, Higashinada, Kobe City 658-0032, Japan;(2) Graduate School of Business Administration, Kyoto University, Yoshida-Honmachi, Sakyo, Kyoto 606-8501, Japan |
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| Abstract: | 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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| Keywords: | third-degree price discrimination consumption externalities price elasticity of demand |
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