"
Varian evaluates the contribution of each of these practices to
economic efficiency in a 1996 article published in "First Monday":
"First-degree price discrimination yields a fully efficient outcome, in
the sense of maximizing consumer plus producer surplus.
Second-degree price discrimination generally provides an efficient
amount of the good to the largest consumers, but smaller consumers may
receive inefficiently low amounts. Nevertheless, they will be better
off than if they did not participate in the market. If differential
pricing is not allowed, groups with small willingness to pay may not be
served at all.
Third-degree price discrimination increases welfare when it encourages
a sufficiently large increase in output. If output doesn't increase,
total welfare will fall. As in the case of second-degree price
discrimination, third-degree price discrimination is a good thing for
niche markets that would not otherwise be served under a uniform
pricing policy.
The key issue is whether the output of goods and services is increased
or decreased by differential pricing."
Strictly speaking, global differential pricing is none of the above. It
involves charging different prices in different markets, in accordance
with the purchasing power of the local clientele (i.
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