Price Discrimination Under Customer Recognition and Mergers

27 Pages Posted: 29 Jul 2015

See all articles by Rosa Branca Esteves

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: Fall 2015

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 behavior‐based price discrimination (BBPD). From a merger policy perspective, this paper's main contribution is twofold. 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 ex‐post effect on the outsider firm's profitability, thereby eliminating the so‐called (static) “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.

Suggested Citation

Esteves, Rosa Branca and Vasconcelos, Helder, Price Discrimination Under Customer Recognition and Mergers (Fall 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 3, pp. 523-549, 2015. Available at SSRN: https://ssrn.com/abstract=2637084 or http://dx.doi.org/10.1111/jems.12107

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

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