An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination
Posted: 9 Mar 2019
Date Written: September 28, 2009
Abstract
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.
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