Price discrimination in a rent-seeking economy

This paper examines the incentive and the consequences of using discriminatory pricing by a monopolist in a rent-seeking economy. It is shown that, even if all consumer groups' demands have identical elasticities at any given price, the monopolist has an incentive to charge a lower price to high pressure consumer groups so as to alleviate their rent-seeking efforts in challenging its monopolistic power. Furthermore, it is shown that by allowing the firm to price discriminate total welfare may increase, even if all rent-seeking expenditures are completely wasteful.