Welfare and output in third-degree price discrimination: A note

One main result on the welfare effects of third-degree price discrimination by a monopolist is that an increase in total output is a necessary condition for welfare improvement. This note provides two examples showing that this proposition does not generalize to an oligopoly with heterogenous firms. In these examples, price discrimination makes competition more favorable to the low cost firm. This induces a cost saving that overcomes the welfare loss associated with price discrimination. (c) 2005 Elsevier B.V. All rights reserved.