Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/26237 
Year of Publication: 
2008
Series/Report no.: 
CESifo Working Paper No. 2192
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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
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