PRICE DISCRIMINATION AND MARKET PERFORMANCE
The purpose of this dissertation is to present several examples which provide some insight into how price discrimination influences equilibria in various types of markets. The results may be used to suggest how price protection policies and/or the Robinson-Patman Act might affect market outcomes. Each example is a game theoretic model of a market. In each case, I present the subgame perfect Nash equilibrium of the game when price discrimination is possible. I then compare these results to the equilibrium which occurs when price discrimination is prohibited, and draw conclusions. In the first chapter, I present a model in which a national firm competes against local firms in geographically separate markets. I show that all equilibrium prices are higher when the national firm is allowed to price discriminate than they are when he is not. The reason is that the national firm's inability to price discriminate, make local firms more aggressive in non-price competition, which drives down prices. The second chapter is a formalization of the Coase conjecture. I show that a monopoly supplier of a fixed input will be unable to capture any monopoly rents if he can price discriminate over time. This is because no firm is willing to purchase at a high price today, when he knows that he will face a competitor who purchases at a lower price tomorrow. I show that the use of a Most Favored Customer clause, exclusive dealership, or vertical integration are all ways for the supplier to solve this problem. In the third chapter, I discuss a market for a variable input where a monopoly supplier sells to competing downstream producers. I show that if the producers have different marginal costs, the equilibrium in which the supplier is unable to price discriminate results in the low cost producer producing more of the final good than he would if the supplier were able to price discriminate. I also show that if producers must choose the level of their marginal cost (by choosing a technology), they choose a lower marginal cost technology when the supplier is unable to price discriminate. To fully understand price discrimination, we must study how the ability to price discriminate affects non-price decisions. This work takes a modest step in that direction.
|Year of publication:||
|Authors:||DEGRABA, PATRICK JOSEPH|
|Type of publication:||Other|
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