Price Discrimination Bans on Dominant Firms

34 Pages Posted: 21 Jan 2008  

Jan Bouckaert

University of Antwerp - Department of Economics

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Theon van Dijk

affiliation not provided to SSRN

Date Written: January 2008

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.

Keywords: dominant firms, price discrimination, competition policy, regulation

JEL Classification: D11

Suggested Citation

Bouckaert, Jan and Degryse, Hans and Dijk, Theon van, Price Discrimination Bans on Dominant Firms (January 2008). CESifo Working Paper No. 2192; TILEC Discussion Paper No. 2008-001; CentER Discussion Paper No. 2008-03 . Available at SSRN: https://ssrn.com/abstract=1086024

Jan Bouckaert

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32 3 220 4055 (Phone)

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Theon Van Dijk

affiliation not provided to SSRN ( email )

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