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 language | English |
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Pages (from-to) | 1430-1455 |
Number of pages | 26 |
Journal | Canadian Journal of Economics |
Volume | 48 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Nov 2015 |
ASJC Scopus subject areas
- Economics and Econometrics