Competition 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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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number
2008-3.
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