Purchase - $5.00

Price Discrimination under Customer Recognition and Mergers

32 Pages Posted: 10 Feb 2010  

Rosa Branca Esteves

NIPE-University of Minho

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2010

Abstract

This paper studies the interaction between horizontal mergers and price discrimination by endogenizing the merger formation process in the context of a repeated purchase model with two periods and three firms wherein firms may engage in Behaviour-Based Price Discrimination (BBPD). From a merger policy perspective, this paper's main contribution is two-fold. First, it shows that when firms are allowed to price discriminate, the (unique) equilibrium merger gives rise to significant increases in profits for the merging firms (the ones with information to price-discriminate), but has no effect on the outsider firm's profitability, thereby eliminating the so called 'free-riding problem'. Second, this equilibrium merger is shown to increase industry profits at the expense of consumers' surplus, leaving total welfare unaffected. This then suggests that competition authorities should scrutinize with greater zeal mergers in industries where firms are expected to engage in BBPD.

Keywords: Behaviour-Based Price Discrimination, Customer Poaching, Horizontal Mergers

JEL Classification: D43, L13, L15, L41

Suggested Citation

Esteves, Rosa Branca and Vasconcelos, Helder, Price Discrimination under Customer Recognition and Mergers (February 2010). CEPR Discussion Paper No. DP7683. Available at SSRN: https://ssrn.com/abstract=1550595

Rosa Branca Esteves (Contact Author)

NIPE-University of Minho ( email )

Braga
Portugal

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

Paper statistics

Downloads
3
Abstract Views
368