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Price Discrimination in the Market for Corporate Law

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  • Kahan, Marcel
  • Kamar, Ehud
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    Abstract

    This Article shows how Delaware uses its power in the market for incorporations to increase its profits through price discrimination. Price discrimination entails charging different prices to different consumers according to their willingness to pay. Two features of Delaware law constitute price discrimination. First, Delaware's uniquely structured franchise tax schedule assesses a higher tax to public than to nonpublic firms and, among public firms, to larger firms and firms more likely to be involved in future acquisitions. Second, Delaware's litigation-intensive corporate law effectively price discriminates between firms according to the level of their involvement in corporate disputes. From the perspective of social welfare, price discrimination between public and nonpublic firms is likely to enhance efficiency (although the efficiency effect of franchise tax price discrimination among public firms is indeterminate). By contrast, price discrimination through litigation-intensive corporate law is likely to reduce efficiency.

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    File URL: http://www.escholarship.org/uc/item/20s614dt.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt20s614dt.

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    Date of creation: 01 Mar 2000
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    Handle: RePEc:cdl:oplwec:qt20s614dt

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