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Bertrand Competition with an Asymmetric No-discrimination Constraint

Authors


  • An earlier version of this paper has circulated under the title ‘Price Discrimination Bans for Dominant Firms.’ We thank the Editor and two anonymous referees, Elena Carletti, Philippe Choné, Eric van Damme, Martin Hellwig, Maarten Janssen, Kai-Uwe Kühn, Pierre Larouche, as well as seminar participants at the University of Frankfurt, the Max Planck Institute in Bonn, CESIfo Applied Micro Conference, Namur, Liège, TILEC, the Tinbergen Institute in Rotterdam and conference participants at EEA-ESEM 2007 and EARIE 2007 for helpful comments. We gratefully acknowledge financial support from FWO-Flanders, the Research Councils of the University of Leuven and the University of Antwerp.

Abstract

Regulators and competition authorities often prevent firms with significant market power, or dominant firms, from practicing price discrimination. The goal of such an asymmetric no-discrimination constraint is to encourage entry and serve consumers' interests. This constraint prohibits the firm with significant market power from practicing both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that this constraint hinders entry and reduces welfare when the monopolistic segment is small.

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