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Imperfect Price Discrimination and Variety

Chester S. Spatt
The Journal of Business
Vol. 56, No. 2 (Apr., 1983), pp. 203-216
Stable URL: http://www.jstor.org/stable/2352824
Page Count: 14
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Imperfect Price Discrimination and Variety
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Abstract

I analyze by geometric techniques a spatial model in which a monopolist uses location differences across consumers to price discriminate. The model is used to examine price discrimination in a model of variety in a setting in which consumers disagree on the definition of quality. The full burden of separation of types is not on binding self-selection conditions. Examples are presented in the paper to show the ambiguous output and welfare comparisons between imperfect discrimination and single-price monopoly. At various extremes discrimination can either (relative to single-price monopoly) make some consumers better off and none worse off, while raising firm profit, or, alternatively, reduce firm output. The effect of an increase in the cost of travel on output, variety, and consumer surplus is demonstrated. The implications of the model are also shown to be exhaustive under various assumptions about the set of observables.

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