PRICE-DISCRIMINATION IN A RENT-SEEKING ECONOMY

This paper examines the incentive and the consequences of using discri minatory pricing by a monopolist in a rent-seeking economy. It is show n that, even if all consumer groups' demands have identical elasticiti es at any given price, the monopolist has an incentive to charge a low er price to high pressure consumer groups so as to alleviate their ren t-seeking efforts in challenging its monopolistic power. Furthermore, it is shown that by allowing the firm to price discriminate total welf are may increase, even if all rent-seeking expenditures are completely wasteful.