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An empirical investigation of the welfare effects of banning wholesale price discrimination

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Sofia Berto Villas-Boas

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Abstract

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream cost differences exist, then discrimination shifts production inefficiently, toward high-cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if quantity sold increases, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition. Copyright (c) 2009, RAND.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1756-2171.2008.00054.x
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Publisher Info
Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 40 (2009)
Issue (Month): 1 ()
Pages: 20-46
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Handle: RePEc:bla:randje:v:40:y:2009:i:1:p:20-46

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  6. Stéphane Caprice, 2006. "Multilateral Vertical Contracting with an Alternative Supply: The Welfare Effects of a Ban on Price Discrimination," Review of Industrial Organization, Springer, vol. 28(1), pages 63-80, 02. [Downloadable!] (restricted)
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  1. Bonnet, CéLine & Dubois, Pierre & Villas Boas, Sofia B., 2009. "Empirical Evidence on the Role of Non Linear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," IDEI Working Papers 565, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Kathryn Graddy & George Hall, 2009. "A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market," NBER Working Papers 15019, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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