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Price discrimination bans on dominant firms

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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.

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Jan Bouckaert, Hans Degryse, Theon van Dijk

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Adapt according to the presented license agreement and reference the original author.