Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria

24 Pages Posted: 17 Jan 2001 Last revised: 21 Nov 2022

See all articles by V. Bhaskar

V. Bhaskar

University of Essex

Ted To

Bureau of Labor Statistics

Date Written: December 12, 2000

Abstract

We analyze models of product differentiation with perfect price discrimination and free entry. Although perfect price discrimination ensures efficient output decisions given product characteristics, coordination failures may prevent efficiency in the choice of product characteristics. More fundamentally, even if we have efficient product choices for a fixed number of firms, one always has excessive entry in free entry equilibrium. Our results apply to a large class of models of product differentiation including location models as well as representative consumer models of the demand for variety. These results also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of lobbyists.

Keywords: price discrimination, efficiency, free entry, product differentiation

JEL Classification: L1, L2, D4

Suggested Citation

Bhaskar, V. and To, Ted, Is Perfect Price Discrimination Really Efficient? An Analysis of Free Entry Equilibria (December 12, 2000). RAND Journal of Economics, Vol. 35, No. 4, 2004, Available at SSRN: https://ssrn.com/abstract=253852 or http://dx.doi.org/10.2139/ssrn.253852

V. Bhaskar

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 (0)1206 872744 (Phone)
+44 (0)1206 872724 (Fax)

Ted To (Contact Author)

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Room 4130
Washington, DC 20212
United States
202-691-6590 (Phone)
202-691-6583 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
304
Abstract Views
2,431
Rank
182,222
PlumX Metrics