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An empirical investigation of the welfare effects of banning wholesale price discrimination

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  • Sofia Berto Villas‐Boas

Abstract

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream cost differences exist, then discrimination shifts production inefficiently, toward high‐cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if quantity sold increases, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition.

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  • Sofia Berto Villas‐Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46, March.
    • Handle: RePEc:bla:randje:v:40:y:2009:i:1:p:20-46
    DOI: 10.1111/j.1756-2171.2008.00054.x
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