Price Discrimination Bans on Dominant Firms
AbstractCompetition authorities and regulatory agencies sometimes impose pricing restrictions on firms with substantial market power â the âdominantâ 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 âhigher-prices-to-sheltered-consumersâ decreases prices in the sheltered segment, relaxes competition in the competitive segment, increases the rivalâs profits, and may harm the dominant firmâs profits. We show that a ban on âhigher-prices-to-sheltered-consumersâ increases the dominant firmâs share of the first-period market. A ban on âlower-prices-to-rivalâs-customersâ decreases prices in the competitive segment, lowers the rivalâs profits, and augments the consumer surplus. In particular, while second-period competition is relaxed by a ban on âlower-prices-to-rivalâs-customersâ, first-period competition is intensified substantially, which leads to lower prices âon-averageâ 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, Tilburg Law and Economic Center in its series Discussion Paper with number 2008-001.
Date of creation: 2008
Date of revision:
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Web page: http://www.tilburguniversity.nl/tilec/
Other versions of this item:
- Jan Bouckaert & Hans Degryse & Theon Van Dijk, 2008. "Price Discrimination Bans on Dominant Firms," CESifo Working Paper Series 2192, CESifo Group Munich.
- 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.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-14 (All new papers)
- NEP-COM-2008-07-14 (Industrial Competition)
- NEP-MIC-2008-07-14 (Microeconomics)
- NEP-MKT-2008-07-14 (Marketing)
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