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-shelteredconsumers” 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’scustomers”, 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 Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-3.
Date of creation: 2008
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dominant firms; price discrimination; competition policy; regulation;
Other versions of this item:
- Degryse, H.A., 2008. "Price Discrimination Bans on Dominant Firms," Discussion Paper 2008-001, Tilburg University, Tilburg Law and Economic Center.
- Jan Bouckaert & Hans Degryse & Theon Van Dijk, 2008. "Price Discrimination Bans on Dominant Firms," CESifo Working Paper Series 2192, CESifo Group Munich.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-19 (All new papers)
- NEP-BEC-2008-01-19 (Business Economics)
- NEP-COM-2008-01-19 (Industrial Competition)
- NEP-IND-2008-01-19 (Industrial Organization)
- NEP-MIC-2008-01-19 (Microeconomics)
- NEP-MKT-2008-01-19 (Marketing)
- NEP-REG-2008-01-19 (Regulation)
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