J Ind Compet Trade (2013) 13:209–219 DOI 10.1007/s10842-011-0121-6 Third-Degree Price Discrimination, Consumption Externalities, and Market Opening Tomohisa Okada · Takanori Adachi Received: 4 October 2011 / Revised: 30 November 2011 / Accepted: 12 December 2011 / Published online: 30 December 2011 © Springer Science+Business Media, LLC 2011 Abstract This study investigates the effects of monopolistic third-degree price dis- crimination on market opening in the presence of consumption externalities between separate markets. Assuming symmetric interdependent linear demands and constant marginal cost, we indicate the possibility that with negative externalities a monop- olist can do better by closing the relatively small market from the social welfare viewpoint, while it prefers opening that market if price discrimination is feasible. This result contradicts the previous literature on third-degree price discrimination and market opening which asserts that, in the case of non-increasing marginal cost, price discrimination improves social welfare if it opens new markets that are closed under uniform pricing. Keywords third-degree price discrimination · consumption externalities · market opening JEL Classification D42 · D62 · L50 1 Introduction This paper analyzes monopolistic third-degree price discrimination for a single final product in an economic environment where consumer’s tastes are exhibiting consumption externalities between two separate markets. In particular, we study the effects of price discrimination on market opening. In the literature of third- degree price discrimination, it is widely held that price discrimination necessarily enhances social welfare if it opens up a new market that is not served under uniform T. Okada (B) · T. Adachi School of Economics, Nagoya University, 1 Furo, Chikusa, Nagoya 464-8601, Japan e-mail: tomookada@nagoya-u.jp T.Adachi e-mail: adachi.t@soec.nagoya-u.ac.jp