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The Welfare Effects of Forbidding Discriminatory Discounts: A Secondary Line Analysis of Robinson-Patman

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  • O'Brien, Daniel P
  • Shaffer, Greg

Abstract

We examine the welfare effects of forbidding price discrimination in intermediate goods markets when firms can bargain over terms of their nonlinear supply contracts. In particular, our focus is on secondary line injury to competition under three interpretations of what it means to forbid price discrimination. We find that in each case, forbidding discriminatory discounts renders retailer bargaining power useless in mitigating manufacturer market power. As a result, all retailers end up paying higher input prices, and all retail prices rise. We show by example that the welfare loss can be substantial. Copyright 1994 by Oxford University Press.

Suggested Citation

  • O'Brien, Daniel P & Shaffer, Greg, 1994. "The Welfare Effects of Forbidding Discriminatory Discounts: A Secondary Line Analysis of Robinson-Patman," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 296-318, October.
  • Handle: RePEc:oup:jleorg:v:10:y:1994:i:2:p:296-318
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    Cited by:

    1. James Langenfeld & Wenqing Li & George Schink, 2003. "Economic Literature on Price Discrimination and its Application to the Uniform Pricing of Gasoline," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 179-193.
    2. Herweg, Fabian & Müller, Daniel, 2016. "Discriminatory nonlinear pricing, fixed costs, and welfare in intermediate-goods markets," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 107-136.
    3. Fabian Herweg & Daniel Müller, 2012. "Price Discrimination in Input Markets: Downstream Entry and Efficiency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 773-799, September.
    4. Inderst, Roman & Jakubovic, Zlata & Jovanovic, Dragan, 2015. "Buyer Power and Functional Competition for Innovation," MPRA Paper 61214, University Library of Munich, Germany.
    5. Fabian Herweg & Daniel Müller, 2014. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Economic Journal, Royal Economic Society, vol. 124(577), pages 776-804, June.
    6. repec:ebl:ecbull:v:12:y:2007:i:31:p:1-8 is not listed on IDEAS
    7. Inderst, Roman & Wey, Christian, 2005. "How Strong Buyers Spur Upstream Innovation," CEPR Discussion Papers 5365, C.E.P.R. Discussion Papers.
    8. Aguirre Iñaki, 2016. "On the Economics of the “Meeting Competition Defense” Under the Robinson–Patman Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1213-1238, September.
    9. Markus Dertwinkel-Kalt & Justus Haucap & Christian Wey, 2016. "Procompetitive dual pricing," European Journal of Law and Economics, Springer, vol. 41(3), pages 537-557, June.
    10. repec:bla:jindec:v:65:y:2017:i:3:p:585-596 is not listed on IDEAS
    11. Ryan Luchs & Tansev Geylani & Anthony Dukes & Kannan Srinivasan, 2010. "The End of the Robinson-Patman Act? Evidence from Legal Case Data," Management Science, INFORMS, vol. 56(12), pages 2123-2133, December.
    12. Ioannis N. Pinopoulos, 2017. "Input price discrimination and upstream R&D investments," Discussion Paper Series 2017_06, Department of Economics, University of Macedonia, revised Jun 2017.
    13. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19.
    14. Ioannis N. Pinopoulos, 2018. "Input price discrimination with secret linear contracting," Discussion Paper Series 2018_01, Department of Economics, University of Macedonia, revised Jan 2018.
    15. Bjørn Olav Johansen & Tore Nilssen, 2016. "The Economics of Retailing Formats: Competition Versus Bargaining," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 109-134, March.
    16. Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2016. "Sourcing strategies of a multi-input-multi-product firm," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 30-45.
    17. Chin-Sheng Chen & Hong Hwang, 2014. "Spatial Price Discrimination in Input Markets with an Endogenous Market Boundary," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(2), pages 139-152, September.
    18. Ioannis Pinopoulos, 2017. "Input price discrimination, two-part tariff contracts and bargaining," Discussion Paper Series 2017_01, Department of Economics, University of Macedonia, revised Jan 2017.

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