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Price Discrimination Bans on Dominant Firms

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  • Degryse, H.A.

    (Tilburg University, TILEC)

Abstract

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-sheltered-consumers” 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’s-customers”, 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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Suggested Citation

  • Degryse, H.A., 2008. "Price Discrimination Bans on Dominant Firms," Discussion Paper 2008-001, Tilburg University, Tilburg Law and Economic Center.
    • Handle: RePEc:tiu:tiutil:f7380d67-55f7-46c3-b1d6-2e1d2ba37103
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    References listed on IDEAS

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    1. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-359, December.
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    Cited by:

    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. Oz Shy & Rune Stenbacka, 2011. "Customer recognition and competition," Working Papers 11-7, Federal Reserve Bank of Boston.

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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