On the Welfare Effects of Resale in the Context of a Nonlinear Pricing Schedule

Willig has demonstrated that any uniform price unequal to marginal cost can be Pareto dominated by a nonlinear pricing schedule--in effect by a price discrimination scheme. Resale is normally considered to be antithetical to price discrimination. This note argues that limited resale can bring about a further Pareto improvement beyond that offered by the nonlinear pricing schedule. The crucial factor is that the reseller knows something that the original seller does not: his own identity and his own specific demands. There are also circumstances, however, under which resale can cause welfare to decrease.