Random price discrimination

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Abstract

When a monopolist randomly sorts customers, price discrimination "concavifies" the revenue function of the firm, so that it may be optimal for a monopolist to divide customers into groups that have the same demand function and charge them different prices. It is impossible to rule out this type of result whenever the revenue function is somewhere convex in the "economically relevant" set of quantities, because there always exists a non-decreasing cost function that leads to that conclusion. It is also impossible to rule out the case where, with respect to monopoly, the firm raises or lowers price to all classes and, accordingly, the case where the social welfare decreases or increases.
Original languageEnglish
Pages (from-to)205-222
Number of pages18
JournalJOURNAL OF ECONOMICS
Volume78
Publication statusPublished - 2003

Keywords

  • "concavification" of the revenue function
  • increasing marginal revenue
  • monopoly
  • random selection of classes
  • third-degree price discrimination

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