PRICE DISCRIMINATION IN RELATED MARKETS |
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| Authors: | C. A. KNOX LOVELL KENNETH L. WERTZ |
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| Affiliation: | *University of North Carolina at Chapel Hill. We are indebted to Thomas Borcherding, John Kwoka, and a referee for their helpful comments on an earlier draft of this paper |
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| Abstract: | The Pigou-Robinson pricing rule for third degree monopolistic price discrimination states that price ratios vary inversely with ratios of direct price elasticities of demand. The rule holds when markets are sealed, and cross price elasticities of demand are zero. We show how the rule can fail when imperfect sealing permits leakage. We also develop a general discriminatory pricing rule that holds when leakage causes market demands to be related. The general pricing rule is based on all direct price elasticities of demand, all cross price elasticities of demand, and the size distribution of the markets |
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