Third-degree price discrimination in the presence of congestion externality

Achim Ingo Czerny, Anming Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

7 Citations (Scopus)

Abstract

This paper analyzes third-degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served. The model features the business-passenger and leisure-passenger markets where business passengers exhibit a higher time valuation, and a less price-elastic demand, than leisure passengers. Our main result is the identification of the time-valuation effect of price discrimination, which can work in the opposite direction as the well-known output effect on welfare. This time-valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output.
Original languageEnglish
Pages (from-to)1430-1455
Number of pages26
JournalCanadian Journal of Economics
Volume48
Issue number4
DOIs
Publication statusPublished - 1 Nov 2015

ASJC Scopus subject areas

  • Economics and Econometrics

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