Price Discrimination Bans on Dominant Firms
AbstractCompetition authorities and regulatory agencies sometimes impose pricing restrictions on firms with substantial market power — the “dominant” firms. We analyze the welfare effects of a ban on behaviour-based price discrimination in a two-period setting where the market displays a competitive and a sheltered segment. A ban on “higher-prices-to-sheltered-consumers” decreases prices in the sheltered segment, relaxes competition in the competitive segment, increases the rival’s profits, and may harm the dominant firm’s profits. We show that a ban on “higher-prices-to-sheltered-consumers” increases the dominant firm’s share of the first-period market. A ban on “lower-prices-to-rival’s-customers” decreases prices in the competitive segment, lowers the rival’s profits, and augments the consumer surplus. In particular, while second-period competition is relaxed by a ban on “lower-prices-to-rival’s-customers”, first-period competition is intensified substantially, which leads to lower prices “on-average” over the two periods. Our findings indicate that a dynamic two-period analysis may lead to conclusions opposite to those drawn from a static one-period analysis.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2192.
Date of creation: 2008
Date of revision:
dominant firms; price discrimination; competition policy; regulation;
Other versions of this item:
- Bouckaert, J.M.C. & Degryse, H.A. & Dijk, T. van, 2008. "Price Discrimination Bans on Dominant Firms," Discussion Paper 2008-3, Tilburg University, Center for Economic Research.
- Degryse, H.A., 2008. "Price Discrimination Bans on Dominant Firms," Discussion Paper 2008-001, Tilburg University, Tilburg Law and Economic Center.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
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