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PRICE DISCRIMINATION: THEORY
(Click above to download a pdf copy of the paper)
- Abstract: Price discrimination comprises a wide
variety of practices aimed to extract rents from base of heterogeneous
consumers. When consumer types remain private information and only their
distribution is known to the monopolist finding the optimal nonlinear tariff
involves solving a constrained variational problem that characterizes the
optimal markup for each purchase level so that consumers of different types
have no incentive to imitate the behavior of others. Fully separating
equilibrium is ensured when the distribution of types fulfills the
increasing hazard rate property and individual demands can be Unambiguously
ranked. Outside this framework, optimal tariffs are difficult to
characterize.
- Publication: In Larry Blume and Steven Durlauf (eds.): The New Palgrave Dictionary of Economics, 2nd edition, Palgrave Macmillan, 2008.
- JEL: C63, D43, D82.
- First version: March 2005.
- Final version: May 2005.
- Funding: None.
- Seminars: None.
- Conferences: None.
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