Output Change under Third Degree Discrimination

Abstract

Third degree price discrimination is a major item under the rubric special topics in any standard neoclassical treatment of monopoly theory. The typical case emphasizes conditions for profitable partitioning of the sub-markets, as well as the allocation of total output to the separate markets. Yet, the full range of the possible output effects under third degree discrimination and the importance, in this connection, of the discontinuity in the simple monopolist's marginal revenue function has not been clearly examined. It is the purpose of this paper to extend this analysis. In addition to having defined degrees of discrimination' A. C. Pigou [10], in his comparison of output under discrimination of the third degree with that of simple monopoly, also distinguished three principal cases in which a monopolist with two markets and the ability to discriminate might find himself: Case I, in which conditions are such that under simple monopoly both markets are served; Case II, in which