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Third-degree price discrimination,
quality choice, and welfare |
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Takeshi Ikeda Tsuyoshi Toshimitsu |
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Economics Letters 2010 |
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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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