Oligopolies Embrace Price Discrimination, Boosting Consumer Welfare
The study shows that in a market with two groups of consumers and two firms, price discrimination can lead to lower prices due to differences in how each firm views the demand elasticity of the consumer groups. This difference is influenced by switching costs. When firms are similar, they can prevent price discrimination that reduces profits. However, if firms are different, there is a temptation to use price discrimination, which can actually benefit overall welfare.