Published: Nov 2009

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JEL Reference: D42, L12, L13

Working Paper

Third-Degree Price Discrimination and Consumer Surplus

This paper presents simple conditions for monopoly third-degree price discrimination to have negative or positive effects on aggregate consumer surplus.  Consumer surplus is often reduced by discrimination, for example when total welfare (consumer surplus and profits) falls.  Surplus increases with discrimination, however, in two cases: first, when the marginal revenues without discrimination are close together and inverse demand in the market where the price will fall with discrimination is more convex; second, when inverse demand functions are highly convex and the discriminatory prices are close together.

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Keywords: Third-degree price discrimination, Monopoly, Consumer surplus