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Abstract
This paper introduces a model of third-degree price discrimination where a seller's pricing power is constrained by buyers' outside options. Price uniformity performs more efficiently than discriminatory pricing, as uniform pricing allows weaker buyers to exploit the more attractive outside option of stronger buyers. This mechanism is markedly different from the mechanisms that are at work in case uniform pricing is imposed on an unconstrained monopolist.
Keywords: price discrimination; uniform pricing
Published Online: 2009-2-25
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
