Wednesday, March 21, 2012
Posted by D. Daniel Sokol
J.M.C. Bouckaert, H.A. Degryse and T. van Dijk (Tilburg University, Center for Economic Research) explore Bertrand Competition with an Asymmetric No-Discrimination Constraint.
ABSTRACT: We study the competitive and welfare consequences when only one firm must commit to uniform pricing while the competitor's pricing policy is left unconstrained. The asymmetric no-discrimination constraint prohibits both behaviour-based price discrimination within the competitive segment and third-degree price discrimination across the monopolistic and competitive segments. We find that an asymmetric no-discrimination constraint only leads to higher profits for the unconstrained firm if the monopolistic segment is large enough. Therefore, a regulatory policy objective of encouraging entry is not served by an asymmetric no-discrimination constraint if the monopolistic segment is small. Only when the monopolistic segment is small and rivalry exists in the competitive segment does the asymmetric no-discrimination constraint enhance welfare.