As I point out there, perfect price discrimination results in meeting all efficiency conditions — until you allow for rent seeking in order to become the monopoly, which may convert it from the best solution to the efficiency problem of monopoly to the worst, since the firm collects all producer and consumer surplus and then competes it away in the process of becoming the monopoly. See Tullock's classic article on rent seeking, "The Welfare Cost of Tariffs, Monopoly and Theft."
That’s a good point. It depends to what extent the producer surplus is value added. If it is, then rent seeking won’t dissipate the surplus. But if the reason for the market power is simple government fiat, then rent seeking will dissipate it. I touch on this in the post I linked to. Your old colleague Joe Ostroy would frame in in terms of marginal product of the person. It’s efficient if people are receiving their contribution.
"no product is produced" is the extreme and not in the real world.
In the real world price discrimination by monopolies is actually shifting welfare gains away from consumers and to producers (and not the labor at the producer only the share holders). And this is happening increasingly as market concentration grows. And the profits that are flowing to share holders are not, in the real world, being re-invested in R&D or plant and equipment they are merely flowing into asset classes like stocks, bonds and real estate inflating their values.
?? Price discrimination sells products at each individual's value price (above marginal cost), so there is no excess consumer value generated. The welfare gain goes to the producer in additional profits.
You will find some of this in my _Price Theory_: http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_16/CHAP16.html. The relevant section starts with the subtitle "Discriminatory Monopoly: The Solution?"
As I point out there, perfect price discrimination results in meeting all efficiency conditions — until you allow for rent seeking in order to become the monopoly, which may convert it from the best solution to the efficiency problem of monopoly to the worst, since the firm collects all producer and consumer surplus and then competes it away in the process of becoming the monopoly. See Tullock's classic article on rent seeking, "The Welfare Cost of Tariffs, Monopoly and Theft."
That’s a good point. It depends to what extent the producer surplus is value added. If it is, then rent seeking won’t dissipate the surplus. But if the reason for the market power is simple government fiat, then rent seeking will dissipate it. I touch on this in the post I linked to. Your old colleague Joe Ostroy would frame in in terms of marginal product of the person. It’s efficient if people are receiving their contribution.
pro-bono is not a price-driven market but simply a wealth transfer
Price discrimination may not reduce total welfare but it shifts welfare gains from consumers to producers.
Not necessarily. If no product is produced, the gains to consumers is zero. If price discrimination changes that, consumers may gain a lot.
"no product is produced" is the extreme and not in the real world.
In the real world price discrimination by monopolies is actually shifting welfare gains away from consumers and to producers (and not the labor at the producer only the share holders). And this is happening increasingly as market concentration grows. And the profits that are flowing to share holders are not, in the real world, being re-invested in R&D or plant and equipment they are merely flowing into asset classes like stocks, bonds and real estate inflating their values.
The same logic goes through if "fewer products are produced". I just used an extreme example to highlight the logic.
Consider the most extreme case of price discrimination: pro-bono work. Would you say that it shifts welfare from consumers to producers?
?? Price discrimination sells products at each individual's value price (above marginal cost), so there is no excess consumer value generated. The welfare gain goes to the producer in additional profits.
That's only true for *perfect* price discrimination, but even that isn't true when multiple sellers engage in price discrimination. https://pricetheory.substack.com/p/what-the-heck-is-welfare