Abstract
This paper develops the analytical solution to the standard problem of second degree discrimination and shows that, as the number of discrete prices increases, the market output approaches that of pure competition or perfect price discrimination in the same manner as Cournot oligopolies converge to competitive outcomes. This solution is subsequently compared with that of Third degree discrimination in light of recent contributions of Coase and Varian. This comparison reveals that-1-neither type of discrimination, in its pure form, is empirically likely;-2- actual price discrimination will involve elements of both types;-3- therefore, the analytical solution to second degree discrimination is, contrary to Pigouvian tradition, no less important than that of third degree discrimination.
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