PRICE-DISCRIMINATION, COMPETITION AND REGULATION

The paper analyzes some effects of price discrimination policy in a model where a dominant incumbent firm faces an endogenous degree, of competition in one of its two markets. Banning price discrimination tends to encourage more entry, which is desirable if the entrant is as efficient as the incumbent but has ambiguous welfare effects more generally. Prices in both markets might fall. Price discrimination policy under different forms of price regulation is also examined. If the incumbent's average price vel is regulated, then allowing price discrimination can lead to pricing below marginal cost, with possible anti-competitive consequences.