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An empirical investigation of the welfare effects of banning wholesale price discrimination
Author(s) -
VillasBoas Sofia Berto
Publication year - 2009
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2008.00054.x
Subject(s) - price discrimination , welfare , price elasticity of demand , economics , downstream (manufacturing) , competition (biology) , economic surplus , german , microeconomics , production (economics) , monetary economics , business , market economy , history , ecology , operations management , archaeology , biology
Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream cost differences exist, then discrimination shifts production inefficiently, toward high‐cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if quantity sold increases, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition.