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Price Discrimination in Competitive Markets
Luis Locay and Alvaro Rodriguez
Journal of Political Economy
Vol. 100, No. 5 (Oct., 1992), pp. 954-965
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/2138630
Page Count: 12
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We present models in which price discrimination in the context of a two-part price can occur in some competitive markets. Purchases take place in groups, which choose which firms to patronize. While firms are perfectly competitive with respect to groups, they have some market power over individual consumers, who are constrained by their groups' choices. We find that firms will charge an entry fee that is below marginal cost, and the second part of the price is marked up above marginal cost. The markup not only is positive but increases with the quality of the product.
Journal of Political Economy © 1992 The University of Chicago Press