Document Type
Discussion Paper
Publication Date
12-1-2019
CFDP Number
2213R
CFDP Revision Date
February 1, 2020
CFDP Pages
17
Journal of Economic Literature (JEL) Code(s)
C72, D82, D83
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 profits. This revenue bound holds 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.
Recommended Citation
Bergemann, Dirk; Castro, Francisco; and Weintraub, Gabriel, "Uniform Pricing Versus Third-Degree Price Discrimination" (2019). Cowles Foundation Discussion Papers. 34.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/34