In our study of monopoly, we found that monopolists can increase profit by segmenting the market and price discriminating (under third degree price discrimination). Now suppose a firm is producing an excludable local public good. Can you justify a form of such market segmentation and price discrimination as efficient?
What will be an ideal response?
If a firm (like a movie theater) produces a local public good and can exclude non-payers, and if the firm furthermore knows how to segment consumer types into high and low demand types, then a form of third degree price discrimination can mimic Lindahl price discrimination. High demanders are charged a higher (Lindahl) price while low demanders are charged a low price.
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