Monopolistic competition, price discrimination and welfare

This paper studies third degree price discrimination in a monopolistically competitive market. When the number of firms is fixed, price discrimination raises firm profit and reduces consumer welfare relative to uniform pricing. When entry is endogenized, the equilibrium product variety under price discrimination is always excessive compared with the social optimum, whereas under uniform pricing variety may be too much or too little. Except when entry is far below the welfare optimum under uniform pricing, a ban on price discrimination leads to enhanced consumer and social welfare. (C) 2018 Published by Elsevier B.V.