Third Degree Price Discrimination in Linear‐Demand Markets: Effects on Number of Markets Served and Social Welfare

Abstract

We analyze the welfare impact of monopolistic third degree price discrimination when all markets are not necessarily served by uniform pricing. We consider n markets with linear demand curves. Each demand is characterized by the price intercept of the demand curve and by the size of the market, as measured by the area under the demand curve. Based on these two exogenous parameters, we establish the necessary and sufficient conditions to determine the number of markets to be served under uniform pricing and the direction of the welfare change under third degree price discrimination.