storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture

price discrimination through offers to match price in this paper a firm discriminates between two classes of customer who have a different cost of information by coupling a list price with an offer to match the pr ice of any other shop if the list price elsewhere is lower the firm will be successful in discrimination the list price of each firm is increasing in the number of sellers and the total sales are decreasi ng in the number of sellers furthermore if sellers coordinate they discriminate more efficaciously and increase their profits by increa sing their total sales copyright 1987 by the university of chicago

colluding on relative prices firms sometimes agree to limit the discounts they offer a class of customers i e they collude on the price differences across consumer classes why courts have struck down agreements to limit discounts as violations of the laws against price fixing are these collusive agreements in fact efficient this article addresses these questions in a multiproduct duopoly model under one interpretation the incentive to collude on relative prices can be traced to heterogeneity in consumers time costs under fairly general conditions total surplus increases with the collusion this efficiency effect is most striking in the case where collusion raises the prices faced by all consumers over which firms compete

gender based price discrimination in matching markets this paper develops a new model to analyze price discrimination in matching markets where agents have private information about their respective qualities on the basis of signals car clothing club membership etc purchased from profit maximizing firms men and women form beliefs about each other s qualities the matching must then be stable in the following sense there cannot be a man and woman who are unmatched and who both believe they would be better off if they were matched with one another the model enables an analysis of the impact of third degree or gender based price discrimination on welfare when third degree price discrimination is not feasible the cost of eliciting private information is higher but a monopoly intermediary may have stronger incentives to implement an efficient allocation i show that gender based price discrimination is more likely to have a positive impact the more symmetric the matching environment is

international effects of national regulations external reference pricing and price controls under external reference pricing erp the price that a government permits a firm to charge in its market depends upon the firm s prices in other countries in a two country home and foreign model where demand is asymmetric across countries we show that home s unilaterally optimal erp policy permits the home firm to engage in a threshold level of international price discrimination above which it is just willing to export if the firm faces a price control abroad or bargains over price with the foreign government an erp policy can even yield higher home welfare than a direct price control

distributive shares in the us economy 1964 2001 specifying the labour theory of value in a way that distinguishes both productive from unproductive labour and production workers from supervisory workers this paper considers distributive shares in the us economy between 1964 and 2001 trends in productive and unproductive labour are explored in full time equivalents hours and money after 1979 there was a large shift of money value not matched by a shift in either hours or employment from the wages paid to productive labour to those paid to supervisory labour since the wage share in money value added of non supervisory labour in unproductive sectors was approximately constant the 1980s and 1990s also saw the profits share squeezed by the rising wage share of supervisory workers some implications of this are explored in the construction of a class rather than a factor approach to distributive shares

third degree price discrimination with interdependent demands this paper analyzes the price output and welfare effects of third degree price discrimination for a monopolist who sells in two interdependent markets the case where the two goods sold by the monopolist are complements is analyzed as well as the more typical case where the two goods are substitutes the economic effects of price discrimination are shown to depend on the type and strength of demand interdependence the curvature of the demands and the slope of marginal cost the circumstances under which price discrimination causes both market prices to either rise or fall are also analyzed

third degree price discrimination under economies of scale there has long been a controversy in economics about whether or not a firm with monopoly power should be allowed to exploit its monopoly power by engaging in third degree price discrimination the effect of third degree price discrimination on welfare is two fold 1 output under price discrimination is misallocated because different groups are charged different prices but 2 if total output is different under price discrimination than under uniform pricing this will also affect welfare 2 schmalensee 8 varian 11 12 and schwartz 9 have shown that price discrimination must decrease welfare if output under price discrimination is the same or less than output under uniform pricing this fundamental result is quite robust and holds regardless of the number of sub markets or the behavior of marginal cost rising constant or falling it also holds even if the sub market demands are interdependent a necessary but not sufficient condition for price discrimination to be beneficial is that it increase total output perhaps the most common situation in which price discrimination will be beneficial is the case where only one sub market is served under uniform pricing but two or more sub markets are served under price discrimination in this case hausman and mackie mason 3 have pointed out that price discrimination will result in a pareto welfare improvement if marginal cost is constant or falling even when price discrimination does not open up new markets hausman and mackie mason 3 and nahata ostaszewski and sahoo 5 have shown that price discrimination can result in a pareto improvement by lowering prices in all sub markets hausman and mackie mason 3 257 argue that price discrimination is most likely to be beneficial when economies of scale are present 3

rent seeking bureaucracies and oversight in a simple growth model abstract following recent cross country empirical work research on public policy and growth has come to examine the impact of inefficient or corrupt bureaucracies most of this work has emphasized the interactions of bureaucracies with private markets by contrast this paper focuses on the relationship between rent seeking bureaucracies and their political authority we show that when oversight is relatively costly as in many developing economies the political authority exercises little monitoring of its agencies which reduces the effectiveness of productive government spending moreover when the technology used to provide public services is poor bureaus better succeed in requesting overly large budgets before triggering any monitoring both of these characteristics contribute to reducing the growth rate of already poor economies

on the welfare effects of anti discrimination regulations in the ec car market abstract cross country price discrimination in an oligopolistic setting is examined in the context of the market for cars in the european community two types of regulation aimed at limiting price discrimination are considered in one constraints are imposed on absolute cross country price differentials in the other constraints are imposed on price ratios the first rule turns out to be uniformly better than the second in a way that we make precise when a country with no domestic producer of cars is introduced it seems that the redistributional effects of antidiscrimination regulation may be more important than any possible gains in efficiency

insider trading 2 0 the ethics of information sales the sale of faster access to financial market data has recently generated public controversy ny attorney general eric schneiderman has referred to such fast data feeds as insider trading 2 0 for example thomson reuters sold the university of michigan s consumer sentiment index to computerized trading firms 2 seconds before releasing its data to its other paying clients this paper explores the ethical issues involved in the sale of such information is selling faster access ethically the same as traditional insider trading which generally involves a breach of fiduciary duty or the use of misappropriated information such practices are extremely different from traditional insider trading as there is neither a breach of fiduciary duty nor misappropriation of inside information the ethical issues are similar to other market segmentation and price discrimination issues in which different prices are charged to different customers the ability to price discriminate across segments can actually benefit large segments of the population who may receive lower prices because others such as the high speed traders are paying more the sale of faster access to information especially by exchanges raises additional ethical issues there may be adverse effects on market quality that must be addressed the moral distaste for the practice expressed by some stems from the seeming unfairness of a modern market structure that provides advantages to a small group of computerized traders

technology distribution and the rate of profit in the us economy understanding the current crisis this paper offers a synoptic account of the state of the debate among marxist scholars regarding the current structural crisis of capitalism identifies two broad streams within the literature dealing in turn with aggregate demand and profitability problems and proceeds to concentrate on an analysis of issues surrounding the profitability problem in two steps first evidence on profitability trends for the non farm non financial corporate business the non financial corporate business and the corporate business sectors in post war usa are summarised a broad range of profit rate measures are covered and data from both the us bureau of economic analysis nipa and fixed assets tables and the federal reserve flow of funds account are used second the underlying drivers of profitability in terms of technology and distribution are investigated the profitability analysis is used to offer some hypotheses about the current structural crisis copyright oxford university press

pareto price discrimination abstract as the collection of consumer data becomes more common online merchants are better equipped to price discriminate now more than ever before while standard first degree price discrimination benefits merchants and harms consumers relative to uniform pricing i derive an alternative first degree pricing strategy that achieves efficiency and pareto improves upon the uniform pricing equilibrium furthermore i show that price ceilings can enforce these pareto price discrimination strategies making pareto price discrimination a viable option for merchants and policy makers

third degree price discrimination in the presence of congestion externality this paper analyzes third degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served the model features the business passenger and leisure passenger markets where business passengers exhibit a higher time valuation and a less price elastic demand than leisure passengers our main result is the identification of the time valuation effect of price discrimination which can work in the opposite direction as the well known output effect on welfare this time valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output

bounding the welfare effects of third degree price discrimination under pigouvian third degree price discrimination a profit maximizing monopolist typically charges different groups of customers different prices resale between groups is assumed to be impossible these differences in price entail a loss of efficiency because marginal valuations of the output are not equal across buyers the net welfare effect of allowing price discrimination is ambiguous though because the total output under discrimination may exceed that under uniform pricing nevertheless under quite general conditions third degree price discrimination by a monopolist can increase static welfare only if total output is greater under discriminatory pricing than under uniform pricing richard schmalensee 1981 hal r varian 1985 marius schwartz 1990 although there has been much analysis of whether price discrimination raises or lowers total output or welfare the size of these effects has remained largely unexplored varian 1985 compares discriminatory pricing to uniform pricing for a monopolist and provides some bounds for the change in welfare in terms of market prices and outputs but these relationships give little sense of the relative size of welfare changes resulting from third degree price discrimination i address this issue by asking what can be said about the ratio wd wu where wd and wu denote welfare under discriminatory and uniform pricing respectively welfare is measured as the sum of producer surplus and marshallian consumer surplus section i provides two examples showing that this ratio can range from zero to infinity in these examples all markets are served under uniform pricing and demand in one of the markets is strictly convex considering a two market model in which a monopolist with constant marginal cost serves two independent markets under uniform pricing i show in section iii that if demands in both markets are concave then wd w is bounded below by 2 the assumptions of constant marginal cost and independent demands allow producer surplus and consumer surplus to be identified separately for each market separability across markets is central to the approach taken in this paper following joan robinson 1933 i call a market strong weak if the discriminatory price in that market is at least as great as no greater than the profit maximizing uniform price surprisingly the key to bounding wd wu is that the demand function in the weak market be concave if one market is strong the other is weak and demand in the weak market is concave then wd w can be bounded above by 2 5 or even 1 75 or 1 6 with additional assumptions on the demand functions these bounds arise for several reasons first the monopolist s profit under uniform pricing must be at least as large as the profit in the weak market under discrimination moreover if at all prices demand in the strong market is as great as in the weak market then profit under uniform pricing must be at least twice as great as profit in the weak market under discrimination otherwise the monopolist could do better by charging the monopoly price for the weak market second this relationship between profits in the two markets is useful in bounding welfare because welfare in each market can be related to profit in that market section ii shows that if demand is con department of economics and a b freeman school of business tulane university new orleans la 70118 i thank marius schwartz and two anonymous referees for their comments on earlier drafts of this paper

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

political and economic influences on the bureaucratic allocation of federal funds the case of urban development action grants abstract the distributive theory of politics predicts that federal budget allocations will be responsive to the committee position of congressmen and their majority minority party status but such political allocations are less likely where bureaucrats rather than legislators make the allocative decisions in such cases we must take into account bureaucratic motivations as well niskanen s bureaucratic budget maximization theory emphasizes such bureaucratic maximands and the efficient production of output or activity by the budget constrained bureau in this paper the two theories are tested using data from the urban development action grant program a capital subsidy program operated by the department of housing and urban development a set of political and bureaucratic decision criteria is employed as independent variables in a series of logit and tobit models in order to predict the likelihood of projects being funded and the amounts they will receive the political criteria are not significant in any specifications but the bureaucratic criteria suggest an investment maximizing risk avoidance strategy on the part of hud bureaucrats thus the results support the niskanen theory but do not support the distributive theory

modeling government behavior in collective bargaining a test for self interested bureaucrats this paper tests for self interested behavior by local government bureaucrats engaged in collective bargaining with public employee unions a theoretical model is developed that shows the effect of niskanen style bureaucratic self interest in the two standard bargaining models the demand constrained model and the efficient bargain model these predictions are then tested using national cross section data on unionized police fire and sanitation workers

turnover time and the organic composition of capital this article argues that marx s key concepts of the organic and value compositions of capital depend on his concept of the turnover time of variable capital methods are given for measuring these three indicators which are applied to the us national accounts from 1947 onwards the results show unambiguous tendencies for the organic and value compositions of capital to rise and for the turnover time of variable capital to fall this is consistent with marx s predictions in capital and his explanation for the tendency of the rate of profit to fall

market fairness the poor country cousin of market efficiency both fairness and efficiency are important considerations in market design and regulation yet many regulators have neither defined nor measured these concepts we develop an evidencebased policy framework in which these are both defined and measured using a series of empirical proxies we then build a systems estimation model to examine the 2003 2011 explosive growth in algorithmic trading at on the london stock exchange and nyse euronext paris our results show that greater at is associated with increased transactional efficiency and reduced information leakage in top quintile stocks for less liquid stocks manipulation at the close declines we also document the tradeoff between reduced spreads and increased manipulation or information leakage following the introduction of mifid1

fragmentation and the growth of local government an assumption of the post world war ii metropolitan reform movement was that fragmentation of metropolitan regions into multiple local governments was wasteful and inefficient increasing the cost and size of government more recently polycentrists have argued that the competition between multiple governments in metropolitan regions can in factreduce the growth in government by providing a competitive check on the excessive demands of local bureaucrats for more resources in this article i explore the effects of fragmentation on growth in the size of suburban municipal government budgets and in the number of services offered competition inherent in more fragmented metropolitan regions is shown to slow the expansion in local government expenditures and service levels

progressive pricing the ethical case for price personalization price discrimination is widely considered unethical unfair by consumers as has been borne out by decades of psychological research and mainstream press reporting however little academic work has been done to investigate the ethics of price discrimination the work that has been done to date concludes that while price discrimination is not unethical despite widespread lay perceptions it is at best morally neutral we argue price discrimination is more ethical than unitary pricing when done progressively meaning firms charge customers as a function of their willingness to pay we introduce this specific kind of price discrimination as progressive pricing and demonstrate it ethically outperforms a unitary pricing scheme where everyone pays the same price regardless of their willingness to pay at least within a broadly consequentialist framework we do this by comparing a unitary pricing scheme to a progressive one analyzing them through the lenses of four different consequentialist social welfare functions utilitarian egalitarian prioritarian and leximin which are used by welfare economists and philosophers to rank the distributions of different social outcomes concluding that progressive pricing is preferred regardless of which social welfare function s one finds most plausible

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

the welfare effects of third degree price discrimination in intermediate good markets the case of bargaining this article examines the welfare effects of third degree price discrimination by a monopolist selling to downstream firms with bargaining power one of the downstream firms the chain store can integrate backward at lower cost than rivals bargaining powers also depend on disagreement profits bargaining weights and concession costs if the chain s integration threat is not credible price discrimination reduces the input price charged symmetric downstream firms and often reduces the average input price charged asymmetric downstream firms

bureaucracy monopoly and competition a critical analysis of the budget maximizing model of bureaucracy niskanen has argued that if government bureaus act so as to maximize their budgets they will always produce an output greater than a private industry resulting in efficiency losses to society since the budget maximizing model relates to a number of intersecting areas of organizational analysis from several disciplines it is important to note the limitations of the model first niskanen s result is only true for a bureau which can exercise perfect price discrimination in its relationship with its financial sponsor where this is not the case the bureau may produce less than a private industry second further variation is introduced by examining the effects on a bureau of specialized resources public goods competition and low productivity a bureau which would otherwise produce an output in excess of the competitive level will when any of these factors are present produce an output closer to the competitive output these results may also have significant policy implications since major industrial countries are favoring policies to return some governmental activities to the private sector

price discrimination in australia s retail electricity markets an analysis of victoria southeast queensland when capital intensive monopoly industries are restructured and deregulated consumer prices commence a natural drift from regulated uniform average cost tariffs to competitive differential prices and this can raise problems for policymakers deep discounts are welcomed high standing offers are not but price discrimination is unremarkable in economics indeed in industries where fixed sunk costs represent a significant portion of total cost discriminatory pricing is usually welfare enhancing conversely theory predicts and empirical evidence confirms that regulatory efforts to cherry pick differential prices in asymmetric markets will damage consumer welfare in this article we analyse differential retail electricity offer prices in the australian states of victoria and queensland and contrast these with industry average total cost and the marginal cost of retail supply we find deregulated victoria displays high price dispersion with standing offer tariffs 10 above industry average total cost and marginal offers at break even prices i e 20 below average total cost in the semi regulated southeast queensland market where a regulated price cap exists there is lower dispersion but marginal offers include a 6 7 retail mark up efficient pricing requires the marginal unit produced to be priced at marginal cost and victoria meets this criteria but we identify an episode of inter consumer misallocation due to high standing offers we conclude policy initiatives designed to help firms shift vulnerable households from standing offer tariffs is desirable

municipal residency laws and local public budgets prior research has shown that residency laws increase the productivity of municipal employees which tends to reduce per unit operating cost however this gain in efficiency appears to have been lost when one considers that public employee groups tend to be high demanders who have a greater tendency to vote in local elections and to support expenditure increases bennett and orzechowski 1983 our results tend to provide additional evidence to support the findings of previous studies that public employee groups tend to exert a disproportionate impact on local budgetary decisions

procompetitive gains from trade and comparative advantage having made the concepts of pro or anticompetitive output changes precise necessary and sufficient conditions for trade gains are derived under conditions of increasing returns to scale and imperfect competition in a general equilibrium model with any finite number of goods and factors these conditions yield generalizations of the theorems of comparative advantage in goods and implicit factor trade the factor content version of the h o theorem other generalizations can be obtained if one assumes quasihomothetic preferences and that welfare effects are dominated by price rather than income effects copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

a note on third degree price discrimination with interdependent demands by incorporating symmetric interdependency into linear demands this note shows that monopolistic third degree price discrimination can improve social welfare even if total output remains the same a result that counters one of the main results presented in layson this journal 1998 it is also shown that this positive change in social welfare benefits the monopoly side but that consumers surplus decreases as a whole

the ethics of insider trading revisited following manne 1966 insider trading and the stock market new york free press we introduce a distinction between insider trading and market manipulation on the one hand and corporate insiders versus misappropriators on the other hand this gives rise to four types of alleged inside transactions we argue that the literature on insider trading has often targeted inside transactions type ii iii and iv but that these arguments do not necessarily hold for type i transactions we look for consequentionalist as well as non consequentionalist arguments against type i transactions and demonstrate that these are hard to find throughout the article we refer extensively to the economic literature on insider trading in order to overcome a relative divide between the economic legal and philosophical discussion on insider trading

intertemporal emission trading with a dominant agent how does a restriction on borrowing affect efficiency in this paper we analyze how restricting intertemporal trading by prohibiting borrowing of emissions permits affects the ability of a dominant agent to exploit its market power we show that the monopolist could take advantage of the constraint on borrowing by not distributing the sale of permits cost effectively across periods furthermore we show that a constant present value price over time does not imply a cost effective distribution of abatement permit sales across periods

customer coalitions monopoly price discrimination and generic entry deterrence abstract this paper analyzes the interplay between a profit maximizing monopolist and a set of consumers who are able to form coalitions that bargain with the monopolist and or integrate into production we show that the monopolist will deter the formation of these countervailing coalitions through strategic selection of generic limit price offers to each consumer these limit prices are derived as subgame perfect equilibria in two alternative models of customer monopoly interplay in both models price discrimination emerges in environments wherein it has previously been considered unprofitable welfare analysis of the equilibria demonstrates the procompetitive effects of potential customer coalitions and generally provides an efficiency based motivation for a government ban on price discrimination

the just price as the price obtainable in an open market this article argues that the price obtainable in an open market provides the best standard for determining the justice or injustice of the price of a product the article argues that this standard which is closely related to positions which have been held for hundreds of years is superior to several alternative conceptions of the just price that have been put forward in recent years and is not subject to fundamental criticisms which can be addressed to them the article also shows how this standard is grounded in more fundamental principles of justice such as desert and equality

welfare increasing third degree price discrimination when demand functions in different markets are derived from distributions of reservation prices that differ only in their means conditions exist such that third degree price discrimination leads to greater total output and greater total welfare welfare is higher with discrimination than with a uniform price when demand functions are derived from logistic distributions with different means welfare and consumer surplus are higher with discrimination for demands derived from a distribution related to the pareto in general whether discrimination increases total output depends on demand being more convex in markets in which prices fall with discrimination than in those in which prices rise

market opening under third degree price discrimination there are frequently regulatory and antitrust pressures for firms to cease price discrimination and practice uniform pricing such pressures however generally have negative welfare consequences when they lead to weaker markets not being served this paper derives conditions that determine when price discrimination will induce service to a market market opening that would not be served under a regime of price uniformity the factors that favor market opening under price discrimination are a large market share for the strong market profit margins in the two markets that are far apart and concave rather than convex demand curves copyright 1994 by blackwell publishing ltd

input price discrimination with downstream cournot competitors abstract this paper addresses third degree price discrimination in input markets i decompose the upstream monopolist s profit into two parts one that depends on average input prices and one that depends on their distribution this decomposition is useful in comparing the welfare properties of price discrimination against uniform pricing under reasonable assumptions input price discrimination negatively affects both consumer surplus and total welfare

prominence and consumer search this article examines the implications of prominence in search markets we model prominence by supposing that the prominent firm will be sampled first by all consumers if there are no systematic quality differences among firms we find that the prominent firm will charge a lower price than its less prominent rivals making a firm prominent will typically lead to higher industry profit but lower consumer surplus and welfare the model is extended by introducing heterogeneous product qualities in which case the firm with the highest quality product has the greatest incentive to become prominent and making it prominent will boost industry profit consumer surplus and welfare

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

the limits of price discrimination we analyze the welfare consequences of a monopolist having additional information about consumers tastes beyond the prior distribution the additional information can be used to charge dierent prices to dierent segments of the market i e carry out third degree price discrimination we show that the segmentation and pricing induced by the additional information can achieve every combi nation of consumer and producer surplus such that i consumer surplus is non negative ii producer surplus is at least as high as pro ts under the uniform monopoly price and iii total surplus does not exceed the e cient gains from trade as well as characterizing the welfare impact of price discrimination we examine the limits of how prices and quantities can change under price discrimination we also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market

realization and accumulation in a marxian model of the circuit of capital abstract a mathematical model of marx s circuit of capital is presented whose elements the composition of capital the rate of surplus value the rate of capitalization of surplus value and production sales and financial time lags are measurable from the accounts of capitalist firms the model is solved for exponential paths a solution with a positive rate of accumulation generally exists on paths with positive rates of accumulation and positive time lags in the recommital of realized value to production an expansion of credit is required to permit the sale of commodities a model of demand pull inflation is incorporated in the framework

government manipulation of constitutional level transaction costs a general theory of transaction cost augmentation and the growth of government transaction costs are pivotal to the ongoing political choice of where to draw the line between the private sector and the public sector contrary to the dominant paradigm politically important transaction costs are actively manipulated in the public sector by those who perceive potential personal gain from such action over time transaction cost changes so created by government decision makers may fundamentally redefine the role and scope of government to analyze the role of transaction costs in the growth or decline of government it is essential to distinguish transaction costs that are unavoidable realworld constraints from those that are contrived in the sense that they are created by government officials use or extension of their existing authority once discretionary power is vested in the government its officials have both the capacity and the incentive to restructure the transaction costs constraining the revision ofgovernrnental authority this restructuring of transaction costs may take two forms 1 altering people s perceptions of the costs and benefits of governmental authority in a given sphere an information cost problem 1 2 altering the cost of acting upon one s perceptions of the costs and benefits of collectivization in order to procure revision of the scope of governmental authority 2

on the welfare effects of regulating price discrimination in a model with linear demands and constant variable costs it is shown that a welfare gain is made by restricting the relative rather than absolute prices that a monopolist can charge for a range of products the nature of this class of restrictions is considered one application might occur if cost levels are unknown to the regulatory authority but costs are known to be linear functions of product characteristics copyright 1992 by blackwell publishing ltd

an empirical investigation of the welfare effects of banning wholesale price discrimination rand 054 rand2007 cls 1994 07 13 v1 2u standard latex document class rand rand 054 dispatch 12 7 2008 ce n a journal msp no no of pages 26 pe sharon rand journal of economics vol 40 no 1 spring 2009 pp 20 45 an empirical investigation of the welfare effects of banning wholesale price discrimination sofia berto villas boas economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination if downstream cost differences exist then discrimination shifts production inefficiently toward high cost retailers so a ban increases welfare if differences in price elasticity of demand across retailers exist discrimination may increase welfare if quantity sold increases so a ban reduces welfare using retail prices and quantities of coffee brands sold by german retailers i estimate a model of demand and supply and separate cost and demand differences simulating a ban on wholesale price discrimination has positive welfare effects in this market and less if downstream cost differences shrink or with less competition introduction wholesale price discrimination means that an upstream firm sets different prices for the same product for various downstream retailers wholesale price discrimination is commonly practiced in many markets examples include markets such as petroleum distribution steel heavy trucking tobacco and pharmaceuticals in several countries milk and other dairy products are sold using government administered or sanctioned discriminatory pricing schemes wholesale price discrimination practices are also used for services such as loans insurance and advertising 1 competition authorities have been concerned with wholesale price discrimination the european union treaty s article 82 c prohibits practices where a dominant firm would place trading partners at a competitive disadvantage the u s robinson patman act forbids discriminat ing in price between different purchasers where the effect may be to lessen competition unless the university of california berkeley sberto are berkeley edu i thank the editor igal hendel and two anonymous referees for many helpful comments and max auffhammer cyndi berck peter berck gal hochman silke januszewski forbes george judge kai uwe k uhn diana lazo mark muendler aviv nevo ariel pakes jeff perloff andrew sweeting miguel villas boas and participants at uc san diego university of michigan the inra idei conference in toulouse and the university of british columbia summer conference in industrial organization for their suggestions i thank daniel klapper for letting me have access to the data support from the giannini foundation and from an aes grant are gratefully appreciated see for gasoline markets texaco v hasbrouck 496 us 543 no 87 2048 1990 and the new york state motor fuel marketing practices act for steel chan hall and rust 2003 for heavy trucking volvo trucks north america inc v reeder simco gmc inc docket no 04 905 for tobacco brooke group ltd v brown and williamson tobacco corp 509 us 209 no 92 466 1993 for wholesale pharmaceuticals see http www datcp state wi us trade business unfair comp drug price jsp for dairy markets see for example gardner 1984 and for services see givens 1983 c 2009 rand copyright

budget maximizing governmental agencies an empirical test niskanen s theory of government budgeting involving powerful agencies interested in maximizing their budgets through bargaining with a weak poorly informed governmental sponsor has received wide recognition this paper presents the first direct empirical tests of niskanen s ideas one implication of niskanen s model of budgeting is that the demand for public services will appear to be elastic niskanen s model also implies restrictions on the elasticity of the derived demand for labor in the public sector neither set of predictions is supported by existing empirical research on government activity

third degree price discrimination in linear demand markets effects on number of markets served and social welfare author affiliation victor kaftal department of mathematical sciences 839 c old chemistry building university of cincinnati cincinnati oh 45221 usa victor kaftal uc edudebashis pal department of economics 1204 crosley tower university of cincinnati cincinnati oh 45221 debashis pal uc edu corresponding author acknowledgment we are grateful to rick harbaugh laura razzolini david sappington and two anonymous reviewers debashis pal is also grateful to taft research center for financial support 1 introductiondoes monopolistic third degree price discrimination reduce social welfare the question has continued to intrigue economists and policy makers for more than half a century the seminal work of robinson 1933 shows that if a monopolist with a constant marginal cost sells in two distinct and independent markets having linear demands then welfare falls with third degree price discrimination almost half a century later schmalensee 1981 reexamines robinson s result and demonstrates that for any number of markets with linear demands third degree price discrimination lowers welfare schmalensee 1981 also establishes more generally that price discrimination increases welfare only if it increases aggregate output subsequently using ingenious duality approaches varian 1985 and schwartz 1990 generalize the results for correlated demands and nonlinear marginal costs 1it is therefore well known that for linear market demands and constant marginal costs monopolistic third degree price discrimination indeed lowers welfare it is important to note however that the welfare reducing effect of third degree price discrimination is derived under a crucial assumption it is assumed that if the monopolist is forced to charge the same price in all markets uniform pricing the monopolist would sell a positive quantity in each market in a recent article cowan 2007 considers various forms of nonlinear demands and presents the necessary and sufficient and or sufficient conditions for price discrimination to reduce welfare cowan 2007 however also assumes that all markets are served under uniform pricing yet when this assumption does not hold the welfare effects of monopolistic third degree price discrimination turn out to be significantly more intricate observe that when all markets are not served under uniform pricing price discrimination may increase welfare because price discrimination may serve markets that would not be served under uniform pricing thus relative to uniform pricing price discrimination has two countervailing effects on welfare aggregate welfare goes down in those markets that are originally served under uniform pricing whereas welfare goes up in those markets that are not served under uniform pricing therefore the additional welfare from the new markets under price discrimination may offset any loss of welfare in the markets that are originally served under uniform pricing the point is strongly emphasized in schmalensee s 1981 seminal work in the context of prescription drugs an identical sentiment is recently echoed in varian 2000 in the context of two markets the possibility of price discrimination opening up new markets is first analyzed graphically by battalio and ekelund 1972 layson 1994 also considers two markets but includes nonlinear demands and presents conditions for opening of new markets based on endogenous features such as elasticities in the context of patent policy opening of new markets by price discrimination is explicitly incorporated by hausman and mackie mason 1988 using two markets they show that price discrimination by a patent holder is socially desirable in many cases because it allows the patent holder to open new markets there is a related literature in spatial economics beginning with greenhut and ohta 1972 and holahan 1975 that deals with spatial price discrimination and market opening with linear demand

welfare and output in third degree price discrimination a note abstract one main result on 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 does not generalize to an oligopoly with heterogenous firms in these examples price discrimination makes competition more favorable to the low cost firm this induces a cost saving that overcomes the welfare loss associated with price discrimination

monopolistic third degree price discrimination under vertical product differentiation this paper shows in a vertical product differentiation model with variable costs of quality that monopolistic third degree price discrimination always reduces welfare regardless of whether the quality is fixed or is endogenous the results provide rich implications for antitrust policy

unequal pricing in the information economy implications for consumer welfare this article presents an economic analysis of information good pricing and consumer welfare and discusses the implications of price discrimination in the information economy it argues that network externalities coupled with information asymmetry enable a dominant marketer to price unequally extracting late adopters surplus to compensate for the loss from early adopters in the short term the minority early adopters benefit by paying less but in the long term the majority late adopters suffer by paying more considering that late adopters are likely to be at a disadvantage in resources this discriminatory pricing amounts to the poor subsidizing the rich based on this analysis implications for consumer welfare are discussed

direct welfare analysis of relative price regulation abstract the paper synthesizes and develops the welfare analysis of regulating relative prices for example price differences of which banning price discrimination is a special case welfare results are derived directly by convexity arguments using functions of welfare levels the method is also used to obtain results about e ects on consumer surplus

input price discrimination in the presence of downstream vertical differentiation abstract this paper investigates the competitive effects of input price discrimination ipd in a setting in which an upstream monopolist produces an essential input supplied to the downstream market where there is competition between two vertically differentiated retailers two different input pricing regimes are investigated i the uniform pricing regime in which third degree input price discrimination is prohibited and i i a discriminatory pricing regime under which the upstream monopolist may charge different prices to the two downstream firms we find that despite favoring the low quality firm ipd is welfare enhancing if and only if the quality gap is sufficiently high

the welfare effects of third degree price discrimination in a differentiated oligopoly this article examines the welfare effects of third degree price discrimination under oligopolistic competition with horizontal product differentiation we derive a necessary and sufficient condition for price discrimination to improve social welfare the degree of substitution must be sufficiently greater in the strong market where the discriminatory price is higher than the uniform price than in the weak market where it is lower it is verified however that consumer surplus is never improved social welfare improves solely owing to an increase in the firms profits in the case of linear demands jel d43 l11 l13 i introduction this article examines the welfare effects of oligopolistic third degree price discrimination explicitly considering product differentiation as a source of market power and strategic interaction product differentiation is one of the main reasons why firms can enjoy market power it enables them to sell products that are no longer perfect substitutes for example coca cola and pepsico sell similar types of soda although it is arguable that they differ in taste each firm thereby attracts some consumers over another as a form of price discrimination coca cola was once reported to be testing a vending machine that would automatically raise prices in hot weather 1 although the plan triggered nationwide controversy and coca cola had to abandon the project as a result it could have changed the regime of uniform pricing to one of price discrimination in the soda market how would the resulting change affect consumer welfare and firms profits in other words is third degree price discrimination good or bad answering this question is important because it helps us to evaluate price discrimination under oligopoly in this article we focus on horizontal product differentiation to consider substitutability as well as complementarity 2 by assuming a linear quadratic utility function of a representative consumer and focusing on the symmetric equilibrium of a pricing game we characterize the conditions relating to such demand properties as substitutability and complementarity required for price discrimination to improve social welfare more specifically we derive a necessary and sufficient condition for price discrimination to improve social welfare the degree of substitution must be sufficiently greater in the strong market where the discriminatory price is higher than the uniform price than in the weak market where it is lower it is also shown that aggregate output must increase for price discrimination to improve social welfare we verify however that consumer surplus is never improved by price discrimination welfare improvement from price discrimination is solely owing to an increase in firms profits in the example above the degree of substitution would be higher in the strong market i e when the temperature is high because consumers care less about which brand when it is hot weather our analysis below implies that social welfare might improve in this case the degree of substitution can vary across markets even if consumers in each market face exactly the same products because consumers taste depends on various market specific factors such as geographical and natural conditions if the strong market is where consumers demand a product more eagerly caring less about which brand in the above example individuals demand soda more eagerly in hot weather then our results suggest that price discrimination has large potential to improve social welfare 3 why does allowing price discrimination improve social welfare notice that there are two forces that determine equilibrium prices in price setting oligopoly a larger market size raises the price whereas a larger substitutability parameter lowers the price for price discrimination to raise social welfare it is necessary that a high degree of substitutability mitigates an increase in the discriminatory price in the larger market

innovation incentives through third degree price discrimination in a model of patent breadth abstract in a model of patent breadth generating linear demand functions it is shown that if a potential inventor has to be given an innovation incentive this is better done by permitting him to price discriminate than requiring uniform prices