A BEJEAP Contributions article.

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.

Recommended Citation

Inderst, Roman and Valletti, Tommaso (2009) "Third-Degree Price Discrimination with Buyer Power," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Contributions), Article 6.
DOI: 10.2202/1935-1682.2114
Available at: http://www.bepress.com/bejeap/vol9/iss1/art6