Welfare and Output in third-degree price discrimination: A note

Abstract

One main result about the welfare effects of third-degree price discrimination by a monopolist is that an increase in total output is a necessary condition for welfare improvement. This note provides two examples showing that this proposition cannot be generalized to an oligopoly with heterogenous firms. In these examples, price discrimination makes competition more favorable to the low cost firm. This fact induces a cost saving that overcome the welfare loss from consumer misallocations associated to price discrimination.