Does Banning Price Discrimination Promote Entry and Increase Welfare? A Model of Differentiated‐product Duopoly With Asymmetric Markets*

Abstract

In this paper we investigate the impact of firms' pricing policies upon entry and welfare under duopoly price competition and product differentiation. We consider a model where an incumbent serves two distinct and independent geographical markets and an entrant may enter in one of the markets. Our results show that discriminatory pricing may be either more, less or equally favorable to entry than uniform pricing. The welfare effect of banning price discrimination is also ambiguous. However, the case for banning price discrimination is much weaker than under monopoly. Interestingly, discriminatory pricing may yield higher welfare even when entry occurs only under uniform pricing.

Quality Differences, Third‐degree Price Discrimination, and Welfare

“…For instance, Jorge and Pires (2013) take into account the role of price discrimination on industry structure with two geographically different markets and potential entry by a producer of a horizontally differentiated product. For instance, Jorge and Pires (2013) take into account the role of price discrimination on industry structure with two geographically different markets and potential entry by a producer of a horizontally differentiated product.…”

“…There are a number of contributions that depart from the assumption of product homogeneity, introducing either horizontal or vertical product differentiation. For instance, Jorge and Pires (2013) take into account the role of price discrimination on industry structure with two geographically different markets and potential entry by a producer of a horizontally differentiated product. The effect on welfare depends on the degree of product substitutability and entry costs.…”

Equity justifications for universal service obligations

“…First, for the cases where ρ > 1 or ρ → 1, then φ( ) → −∞, so that the regulator requires ubiquity (θ m = 1) for the incumbent or, if not feasible, chooses the largest coverage possible. When ubiquity is feasible 19 , the regulator could in principle consider the trade-off between equity and efficiency among covered markets according to its exact value of ρ. As φ…”

“…7 The impact of price discrimination (or, for that matter, uniform pricing) on entry has been studied for different market setups. See JorgePires [19]. 8 For example, see Anton et al [3], Bourguignon and Ferrando [5], Calzada [6], Choné et al [8], [9], Foros and…”

On the Economics of the “Meeting Competition Defense” Under the Robinson–Patman Act

“…See also Liu and Serfes (2010). 8 Other related papers that consider the effects of price discrimination when competition varies across markets are Aguirre (2000), Dobson and Waterson (2005), Aguirre (2011) and Jorge and Pires (2013).…”