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Fighting collusion by permitting price discrimination

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  • Helfrich, Magdalena
  • Herweg, Fabian

Abstract

We investigate the effect of a ban on third-degree price discrimination on the sustainability of collusion. We build a model with two firms that may be able to discriminate between two consumer groups. Two cases are analyzed: (i) Best-response symmetries so that profits in the static Nash equilibrium are higher if price discrimination is allowed. (ii) Best-response asymmetries so that profits in the static Nash equilibrium are lower if price discrimination is allowed. In both price discrimination scenarios, firms’ discount factor has to be higher in order to sustain collusion in grim-trigger strategies than under uniform pricing.

Suggested Citation

  • Helfrich, Magdalena & Herweg, Fabian, 2016. "Fighting collusion by permitting price discrimination," Economics Letters, Elsevier, vol. 145(C), pages 148-151.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:148-151
    DOI: 10.1016/j.econlet.2016.05.024
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    Cited by:

    1. Stefano Colombo & Aldo Pignataro, 2022. "Information accuracy and collusion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 638-656, August.
    2. John S. Heywood & Dongyang Li & Guangliang Ye, 2021. "Spatial pricing and collusion," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 425-440, May.
    3. Florian Gössl & Alexander Rasch, 2020. "Collusion under different pricing schemes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 910-931, October.
    4. Florian Peiseler & Alexander Rasch & Shiva Shekhar, 2022. "Imperfect information, algorithmic price discrimination, and collusion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(2), pages 516-549, April.
    5. Peiseler, Florian & Rasch, Alexander & Shekhar, Shiva, 2018. "Private information, price discrimination, and collusion," DICE Discussion Papers 295, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Axel Gautier & Ashwin Ittoo & Pieter Cleynenbreugel, 2020. "AI algorithms, price discrimination and collusion: a technological, economic and legal perspective," European Journal of Law and Economics, Springer, vol. 50(3), pages 405-435, December.
    7. John S. Heywood & Dongyang Li & Guangliang Ye, 2020. "Does price discrimination make collusion less likely? a delivered pricing model," Journal of Economics, Springer, vol. 131(1), pages 39-60, September.
    8. Döpper, Hendrik & Rasch, Alexander, 2022. "Combinable products, price discrimination, and collusion," DICE Discussion Papers 377, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Schlütter, Frank, 2022. "Managing Seller Conduct in Online Marketplaces and Platform Most-Favored Nation Clauses," LIDAM Discussion Papers CORE 2022026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Collusion; Duopoly; Grim-trigger strategies; Third-degree price discrimination;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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