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Bertrand Competition with an Asymmetric No-Discrimination Constraint

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  • Bouckaert, J.M.C.
  • Degryse, H.A.
  • Dijk, T. van

    (Tilburg University, Center for Economic Research)

Abstract

Abstract: We study the competitive and welfare consequences when only one firm must commit to uniform pricing while the competitor’s pricing policy is left unconstrained. The asymmetric no-discrimination constraint prohibits both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that an asymmetric no-discrimination constraint only leads to higher profits for the unconstrained firm if the monopolistic segment is large enough. Therefore, a regulatory policy objective of encouraging entry is not served by an asymmetric no-discrimination constraint if the monopolistic segment is small. Only when the monopolistic segment is small and rivalry exists in the competitive segment does the asymmetric no-discrimination constraint enhance welfare.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2012-009.

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Date of creation: 2012
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Handle: RePEc:dgr:kubcen:2012009

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Web page: http://center.uvt.nl

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Keywords: Dominant firms; price discrimination; competition policy; regulation;

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  1. Gehrig, Thomas & Shy, Oz & Stenbacka, Rune, 2011. "History-based price discrimination and entry in markets with switching costs: A welfare analysis," European Economic Review, Elsevier, vol. 55(5), pages 732-739, June.
  2. Taylor, Curtis R., 2000. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," Working Papers 00-12, Duke University, Department of Economics.
  3. Amit Pazgal & David Soberman, 2008. "Behavior-Based Discrimination: Is It a Winning Play, and If So, When?," Marketing Science, INFORMS, vol. 27(6), pages 977-994, 11-12.
  4. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
  5. Yongmin Chen, 2008. "DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 729-751, December.
  6. Hoernig, Steffen & Pita Barros, Pedro Luis & Valletti, Tommaso, 2001. "Universal Service and Entry: the Role of Uniform Pricing and Coverage Constraints," CEPR Discussion Papers 2789, C.E.P.R. Discussion Papers.
  7. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  8. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
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