The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Price Discrimination (Theory)

  • Eugenio J. Miravete
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2630

Abstract

Price discrimination comprises a wide variety of practices aimed at extracting rents from a base of heterogeneous consumers. When consumer types are private information and only their distribution is known to the monopolist, finding the optimal nonlinear tariff involves solving a constrained variational problem that characterizes the optimal markup for each purchase level so that consumers of different types have no incentive to imitate the behaviour of others. Fully separating equilibrium is ensured when the distribution of types fulfills the increasing hazard rate property and individual demands can be unambiguously ranked. Outside this framework, optimal tariffs are difficult to characterize.

Keywords

Arbitrage Exclusive agency Incentive compatibility constraints Individual pricing Inverse elasticity rule Market segmentation Mechanism design Mirrlees, J. Multidimensional variational problem Multiple products Nonlinear pricing Nonlinear taxation Peak-Load pricing Pigou, A. Price discrimination Ramsey pricing Reservation price Sequential screening 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Eugenio J. Miravete
    • 1
  1. 1.