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An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination

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Author Info
Sofia Villas-Boas (University of California, Berkeley)

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Abstract

I empirically investigate the welfare effects of banning upstream price discrimination. Theory suggests that opposing forces are at work. On one hand, the existence of downstream retail cost differences suggests that banning wholesale price discrimination will increase welfare. On the other hand, retailer quality differentiation, that may lead to differences in retail elasticities, suggests the opposite. Using retail level scanner data on coffee produced by multiple manufacturers and sold at the largest retail outlets in Germany, I estimate a structural demand and oligopoly model with multiple retailers and manufacturers, which I use to recover brand-level marginal costs. I use the estimates to simulate the welfare effects of banning wholesale price discrimination. The results suggest that banning price discrimination will have positive welfare effects. I show through simulations that the estimated positive welfare effects are reduced if downstream cost differences shrink or if there is less competition in the market. These results have policy implications for a variety of markets where bans on wholesale price discrimination have been considered.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 1017.

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Date of creation: 08 Aug 2008
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Handle: RePEc:cdl:agrebk:1017

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Keywords: Uniform Wholesale Pricing; Oligopoly models of multiple manufacturers and retailers; Coffee Retail Market; Welfare;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Yale School of Management Working Papers ysm229, Yale School of Management. [Downloadable!]
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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)
  7. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Blackwell Publishing, vol. 74(2), pages 625-652, 04. [Downloadable!] (restricted)
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  10. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer. [Downloadable!] (restricted)
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  15. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  16. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September. [Downloadable!] (restricted)
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  18. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March. [Downloadable!] (restricted)
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    Other versions:
  20. Goldberg, Pinelopi Koujianou & Verboven, Frank, 2001. "The Evolution of Price Dispersion in the European Car Market," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 811-48, October.
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  21. Ireland, Norman J, 1992. "On the Welfare Effects of Regulating Price Discrimination," Journal of Industrial Economics, Blackwell Publishing, vol. 40(3), pages 237-48, September. [Downloadable!] (restricted)
  22. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-53, December. [Downloadable!] (restricted)
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  27. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-61, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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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