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Third-degree Price Discrimination with Fairness-concerned Consumers

Authors

  • Tomohisa Okada

    1. Graduate School of Economics, Nagoya University
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    • I thank an anonymous referee of this journal for invaluable comments and suggestions. I am also grateful to Takanori Adachi, Makoto Hanazono, Takeshi Ikeda, Noriaki Matsushima, Kazutoshi Miyazawa, Tatsuhiko Nariu, Akira Nishimori, Hikaru Ogawa, Takao Ohkawa, Makoto Okamura and Makoto Tawada for helpful discussions. All remaining errors are my own.

Abstract

This paper studies monopolistic third-degree price discrimination, incorporating consumers' fairness concerns: discriminatory pricing antagonizes consumers and may reduce their demand. In contrast to the findings in previous studies, we show that consumers' concerns regarding price inequalities may deter discriminatory pricing by monopolists. Furthermore, a strong aversion to unfair pricing may improve social welfare compared with the situation in which consumers do not perceive price discrimination as unfair. Conversely, if the disutility from price inequality is not sufficiently large, social welfare decreases.

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