Market Opening under Third-Degree Price Discrimination

Abstract

There are frequently regulatory and antitrust pressures for firms to cease price discrimination and practice uniform pricing. Such pressures, however, generally have negative welfare consequences when they lead to weaker markets not being served. This paper derives conditions that determine when price discrimination will induce service to a market (market opening) that would not be served under a regime of price uniformity. The factors that favor market opening under price discrimination are a large market share for the strong market, profit margins in the two markets that are far apart, and concave rather than convex demand curves. Copyright 1994 by Blackwell Publishing Ltd.

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