Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment
RAND Journal of Economics, Vol. 29, No. 2
Posted: 8 Jul 1998
Abstract
Price discrimination by imperfectly competitive firms may intensify competition, leading to lower prices for all consumers; the trade-off of consumer groups' welfare that is characteristic of monopolistic discrimination need not arise. This escalation of competition may make firms worse off, and as a result firms may wish to avoid the discriminatory outcome. Under conditions similar to those in which unambiguous price and welfare effects may arise, unilateral commitments not to price discriminate--including the adoption of everyday low pricing or no-haggle policies--may raise firm profits by softening price competition.
JEL Classification: L13
Suggested Citation: Suggested Citation