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Title:Price discrimination bans on dominant firms PDF Logo
Authors:Bouckaert, Jan
Degryse, Hans
Dijk, Theon van
Issue Date:2008
Series/Report no.:CESifo working paper 2192
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.
Subjects:dominant firms
price discrimination
competition policy
regulation
JEL:D11
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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