Pass-Through as an Economic Tool -- On Exogenous Competition, Social Incidence, and Price Discrimination

Abstract

Weyl and Fabinger (2013) analyze the social incidence of competition and the
output and welfare effects of third-degree price discrimination by considering the
hypothetical entrance of exogenous quantity into a market. The formulas they use for
this purpose, however, are correct only for marginal changes in exogenous quantity
starting at zero or if demand functions are linear. We show how using the correct
formulas changes Weyl and Fabinger's analyses and leads to new results on the social
incidence of competition and on the output and welfare effects of third-degree price
discrimination in monopoly and oligopoly markets.