Abstract
Many texts for intermediate microeconomics, price theory or managerial economics begin the discussion of price discrimination by outlining three necessary conditions for the existence of price discrimination (and firms increased prof itability). Of the three familiar conditions, students frequently question the necessity of the prevention of arbitrage (or slippage) by sellers. The purpose of this short paper is to demonstrate that the intuition of such students has sound theoretic support: there need not be complete separation into identifiable markets for sellers to profitably third degree price discriminate. Intermediate level texts are rather rigid in iden tifying the separation condition for price discrimi nation. Take for example Miller and Mieners (1986, p. 383, emphasis ours):
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