Third-degree price discrimination,quality choice,and welfare |
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Authors: | Takeshi Ikeda Tsuyoshi Toshimitsu |
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Affiliation: | 1. School of Economics, UNSW Business School, University of New South Wales, Sydney, NSW 2052, Australia;2. Barcelona Graduate School of Economics, Barcelona, Catalonia, Spain |
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Abstract: | Employing an endogenous quality choice model, we reconsider the effect on welfare of monopolistic third-degree price discrimination. We prove that price discrimination always enhances welfare, mainly because the quality improvement owing to price discrimination increases consumer surplus. Moreover, we show that third-degree price discrimination benefits all parties, including consumers in the higher priced market if the preference differences between markets are sufficiently large. |
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