Pass-Through As An Economic Tool: On Exogenous Competition, Social Incidence, And Price Discrimination

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.