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Yong Chao and Babu Nahata
''Market foreclosure, output and welfare under second-degree price discrimination''
( 2018, Vol. 38 No.4 )
We compare second-degree price discrimination with uniform pricing using two linear demands, with and without the Spence-Mirrlees condition. We find that second-degree price discrimination can result in a welfare-enhancing market foreclosure (one market is excluded under second-degree price discrimination when both markets would be served under uniform pricing) because the resulting foreclosure can increase both the total output and the total surplus. Moreover, the total surplus under second-degree price discrimination could also be lower without the foreclosure. Our results are in stark contrast with the well-known results related to output and welfare effects under third-degree price discrimination.
Keywords: market foreclosure, welfare effects, second-degree price discrimination
JEL: D4 - Market Structure and Pricing: General
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Sep 19 2018 Manuscript Accepted : Dec 02 2018

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