A Study On The Competition Effects Of Third-degree Price Discrimination Of Oligopoly Firms

In real life, it is prevalent that companies discriminate from different consumergroups with different willingness to pay. The paper studies the competition effects andwelfare based on third-degree price discrimination of oligopoly firms which have beenlittle covered in the present literature. Through the research of the competition effectand welfare based on third-degree price discrimination of oligopoly firms, we couldjudge whether price discrimination does some harm to competition and know its impacton social welfare. This is also for government departments on how to implement theseindustries provide a basis for price control.This paper addresses two issues: what about the impact of oligopoly firmsimplementing third-degree price discrimination on social welfare and competition? Themain part of this paper is divided into two part----theoretical models and empirical tests.The theoretical parts research the competition effects and welfare based on third-degreeprice discrimination of oligopoly firms from quantity competition, price competitionand entry deterrence these three aspects.Third-degree price discrimination under quantity competition will increasecompetition in the oligopoly firms market, and the result of competition is Paretoimprovement. Because whether the falling of the average market price or more efficiententerprises occupying a higher market share, the final result of the competition wouldhave increased the total social welfare.In terms of price competition, the competition effects and welfare change based onthird-degree price discrimination of oligopoly firms is uncertain. In the best responsesymmetric case, the competition effects and welfare change based on third-degree pricediscrimination of oligopoly firms is ambiguous.; under optimal reaction asymmetriccase, price discrimination on social welfare impact is uncertain; In the case of qualitydifferentiated, as long as high-quality manufacturers implements third-degree pricediscrimination, the social welfare will increase.In case there is some cost of entry, when oligopolistic firms compete with quantities,the blocking effect of price discrimination is obvious; while oligopoly firms competewith price, the blocking effect of price discrimination is quite fierce and social welfarewill increase. If incumbents compete with potential firms as well as some entry costexists, the incumbent carries out third-degree price discrimination may form a blocking effect and the welfare effect is ambiguous. However, apart from the situation of largeentry cost, price discrimination always tends to reduce social welfare.The empirical parts test on the association between discriminatory pricing of airlinesand market competition. It proves that the airlines implement price discriminationwould increase the competition degree.Above all, this paper proves that the competition effects and welfare change basedon third-degree price discrimination of oligopoly firms is uncertain.