Price discrimination in a rent-seeking economy

✍ Scribed by Francis K. Cheung; Xinghe Wang

• Publisher: Springer US
• Year: 1996
• Tongue: English
• Weight: 630 KB
• Volume: 86
• Category: Article
• ISSN: 0048-5829
• DOI: 10.1007/bf00114877

✦ Synopsis

This paper examines the incentive and the consequences of using discriminatory pricing by a monopolist in a rent-seeking economy. It is shown that, even if all consumer groups' demands have identical elasticities at any given price, the monopolist has an incentive to charge a lower price to high pressure consumer groups so as to alleviate their rent-seeking efforts in challenging its monopolistic power. Furthermore, it is shown that by allowing the firm to price discriminate total welfare may increase, even if all rent-seeking expenditures are completely wasteful. * We are grateful to Peter Mueser for his helpful comments on an earlier version of the paper.