Faculty of Economics and Business Administration Publications Database

Third-Degree Price Discrimination with Buyer Power

Valletti, Tommaso
Volume: 9
Number: 1
Pages: 1 - 14
Month: February
ISSN-Print: 1935-1682
Link External Source: Online Version
Year: 2009
Keywords: Price discrimination; Uniform pricing
Abstract: This paper introduces a model of third-degree price discrimination where a seller''s pricing power is constrained by buyers'' outside options. Price uniformity performs more efficiently than discriminatory pricing, as uniform pricing allows weaker buyers to exploit the more attractive outside option of stronger buyers. This mechanism is markedly different from the mechanisms that are at work in case uniform pricing is imposed on an unconstrained monopolist.