| Sumario: | A study examined the price effects of price discrimination. A model was developed that features constant marginal cost and only two markets, both of which are served with and without discrimination. Polynomial demand functions were used to illustrate the results, which show that discrimination in the final good market can raise or lower the prices for all buyers. When prices move in the same direction in both markets, the welfare effect of discrimination may be much larger than when a price falls in one market but rises in the other. When both prices go down, consumers' surplus increases, profit increases, and welfare goes up. Similarly, when both prices go up, total output is reduced, and welfare goes down.
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