The Effects Of Imperfect Price Discrimination In A Bertrand Oligopoly

This paper presents a theoretical analysis of the effects of imperfect price discrimination in a differentiated products Bertrand oligopoly. Three types of discrimination are considered: that based on differences in industry demand elasticity {i.e. sensitivity to changes in a common industry price), that based on differences in brand elasticity {i.e. sensitivity to price differentials between firms), and spatial discrimination. Limit results are obtained which show that, when markets are approximately competitive, industry demand elasticity discrimination always increases total output and surplus, while brand elasticity discrimination has the opposite effects. An example is presented in which these results hold for more general degrees of competitiveness. In this example it is shown that spatial discrimination always results in lower prices for all consumers, which increases total surplus but decreases industry profits.