Consumer Patience and Price Discrimination in Indian Monopoly Markets: A Welfare Analysis

Abstract

In the complex pricing landscape of Indian monopolistic markets, third-degree price discrimination remains a crucial strategy for firms aiming to optimize profits. However, the incorporation of consumer patience- a behavioural factor where consumers delay purchases in anticipation of better deals-  has been largely underexplored. This paper models the welfare implications of third-degree price discrimination in India by embedding consumer patience into a two-period game-theoretic framework. The analysis distinguishes between two types of consumers: urban/metro consumers with low patience and high willingness to pay, and rural/tier-II consumers with high patience but low willingness to pay. The study evaluates both endogenous and exogenous product quality scenarios. It reveals that when quality is endogenous, higher consumer patience can improve overall welfare through better alignment between pricing and consumer utility. However, under exogenous quality, discriminatory pricing, while profitable to firms, reduces consumer surplus and social welfare. Given India's vast and heterogeneous market landscape marked by stark urban-rural divides, regional disparities, and widespread digital adoption, this research holds significant policy and strategic implications. It argues that consumer patience, far from being a passive trait, must be actively factored into pricing policies and welfare analysis, particularly in regulated sectors like education, healthcare, and digital services. By offering theoretical and policy insights rooted in Indian market realities, this study contributes to the growing literature on behavioural welfare economics and pricing strategy in emerging economies.