| By: |
Dirk Bergemann (Cowles Foundation, Yale University);
Francisco Castro (Anderson School of Management, UCLA);
Gabriel Weintraub (Graduate School of Business, Stanford University) |
| Abstract: |
We compare the revenue of the optimal third-degree price discrimination policy
against a uniform pricing policy. A uniform pricing policy offers the same
price to all segments of the market. Our main result establishes that for a
broad class of third-degree price discrimination problems with concave revenue
functions and common support, a uniform price is guaranteed to achieve one
half of the optimal monopoly proï¬ ts. This revenue bound obtains for any
arbitrary number of segments and prices that the seller would use in case he
would engage in third-degree price discrimination. We further establish that
these conditions are tight, and that a weakening of common support or
concavity leads to arbitrarily poor revenue comparisons. |
| Keywords: |
First Degree Price Discrimination, Third Degree Price Discrimination, Uniform Price, Approximation, Concave Demand Function, Market Segmentation |
| JEL: |
C72 D82 D83 |
| Date: |
2019–12 |
| URL: |
http://d.repec.org/n?u=RePEc:cwl:cwldpp:2213&r=all |