Neutrality of third-degree price discrimination

Abstract

This note shows that compared to uniform pricing, third-degree price discrimination can be neutral. For linear demands, having all price intercepts of submarkets’ inverse demands to be the same is the necessary and sufficient condition for third-degree price discrimination to be neutral. For general demands, when all submarkets’ demands are proportional to each other, not only will all the submarkets be served under uniform pricing, but all prices before and after price discrimination will be the same.