Discriminatory Pricing in Software Sales and Competition Law: More Efficiency than Harm?

Abstract

Discriminatory Pricing is a practice that can be used either to eliminate competitors or to charge consumers deserving prices, both of which are condemned by competition law. However, Discriminatory Pricing is often accompanied by certain positive effects. For instance, it allows more consumers to consume the product and thus commit to economies of scale. Therefore, there are no illegal issues associated with Discriminatory Pricing per se. This paper observes that Discriminatory Pricing practices occur in the software market. The software market is a new market that differs from traditional markets in many aspects. Although factors such as network effects and innovation competition provide an environment conducive to the proliferation of Discriminatory Pricing, these factors also remove the eliminative and exploitative aspects of Discriminatory Pricing in the software market. Traditional regulation is not well suited to regulating software Discriminatory Pricing. Software Discriminatory Pricing is a commonly used marketing strategy and should not be subject to restrictions by competition law. This paper analyzed the possibility of abusive Discriminatory Pricing in the software market and suggested a test for assessing such abuse. Accordingly, this paper has concluded that software Discriminatory Pricing is efficient.

Keywords: software market, discriminatory pricing, efficiency, long-run average incremental cost

JEL Classification: K21, L11, L86, O31