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The Welfare Effects of Forbidding Discriminatory Discounts: A Secondary Line Analysis of Robinson-Patman

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  • O'Brien, Daniel P
  • Shaffer, Greg
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    Abstract

    We examine the welfare effects of forbidding price discrimination in intermediate goods markets when firms can bargain over terms of their nonlinear supply contracts. In particular, our focus is on secondary line injury to competition under three interpretations of what it means to forbid price discrimination. We find that in each case, forbidding discriminatory discounts renders retailer bargaining power useless in mitigating manufacturer market power. As a result, all retailers end up paying higher input prices, and all retail prices rise. We show by example that the welfare loss can be substantial. Copyright 1994 by Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

    Volume (Year): 10 (1994)
    Issue (Month): 2 (October)
    Pages: 296-318

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    Handle: RePEc:oup:jleorg:v:10:y:1994:i:2:p:296-318

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    Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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    Cited by:
    1. James Langenfeld & Wenqing Li & George Schink, 2003. "Economic Literature on Price Discrimination and its Application to the Uniform Pricing of Gasoline," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 179-193.
    2. Roman Inderst & Christian Wey, 2005. "How Strong Buyers Spur Upstream Innovation," Discussion Papers of DIW Berlin 524, DIW Berlin, German Institute for Economic Research.
    3. Fabian Herweg & Daniel Müller, 2012. "Price Discrimination in Input Markets: Downstream Entry and Efficiency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 773-799, 09.
    4. repec:ebl:ecbull:v:12:y:2007:i:31:p:1-8 is not listed on IDEAS
    5. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19.

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