Third-degree price discrimination versus uniform pricing

DOI10.1016/J.GEB.2021.11.008MaRDI QIDQ2078048zbMATH OpenOpenAlexFDO

Authors Yanyan Li

Publication date 25 February 2022

Published in Games and Economic Behavior (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1912.05164

zbMATH Keywords

approximationconcave profit functionmarket segmentationthird-degree price discriminationuniform price

Mathematics Subject Classification ID

Microeconomic theory (price theory and economic markets) (91B24)

Abstract: We compare the profit 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 profit functions (in the price space) and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly profits. This profit bound holds for any number of segments and prices that the seller might use under third-degree price discrimination. We establish that these conditions are tight and that weakening either common support or concavity can lead to arbitrarily poor profit comparisons even for regular or monotone hazard rate distributions.

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Cites work

• Algorithmic Price Discrimination
• Optimal Auction Design
• Optimal auctions vs. anonymous pricing
• Optimal sales contracts with withdrawal rights
• Revenue maximization with a single sample
• The complexity of optimal mechanism design
• The scope of sequential screening with ex post participation constraints

Cited in

(8)

• Random price discrimination
• The cost effect in third-degree price discrimination
• Computing prices for target profits in contracts
• Uniform pricing and product innovation
• When is price discrimination profitable?
• Effort discrimination and curvature of contest technology in conflict networks
• Licensing pricing discrimination and allocative efficiency about the Chinese dual-use defense technology under a military shareholding contract
• Deterministic refund mechanisms

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