Third-Degree Price Discrimination in the Presence of Subsidies
2006 ◽
Vol 7
(4)
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pp. 419-426
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Abstract According to a classical result, a move from uniform pricing to third-degree price discrimination only improves welfare if total output increases. In this paper I show that the classical result fails in the presence of subsidies. This finding appears to be relevant for the pharmaceutical sector where a consumer pays a fraction of the actual drug price due to health insurance coverage.
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