Third-degree price discrimination in oligopoly: all-out competition and strategic commitment

Price discrimination by imperfectly competitive firms may intensify competition, leading to lower prices for all consumers; the tradeoff of consumer groups' welfare that is characteristic of monopolistic discrimination need not arise. This escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome. Under conditions similar to those in which unambiguous price and welfare effects may arise, unilateral commitments not to price discriminate-including the adoption of everyday low pricing or no-haggle policies-may raise firm profits by softening price competition.