Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2014-10-23
Number: 14-140/VIII
Author-Name: Achim I. Czerny
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Anming Zhang
Author-Workplace-Name: The University of British Columbia, Canada
Title: Third-degree Price Discrimination in the Presence of Congestion Externality
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.
Classification-JEL: D42, L93
Keywords: Price discrimination, congestion, time valuation, monopoly, airline
File-Url: https://papers.tinbergen.nl/14140.pdf
File-Format: application/pdf
File-Size: 339368 bytes
Handle: RePEc:tin:wpaper:20140140