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Bertrand Competition with an Asymmetric No‐Discrimination Constraint

By  |  May 8, 2013

Posted by D. Daniel Sokol

Jan Bouckaert, University of Antwerp – Department of Economics, Hans Degryse, KU Leuven – Faculty of Business and Economics (FBE) and Theon Van Dijk, Lexonomics analyze Bertrand Competition with an Asymmetric No‐Discrimination Constraint

ABSTRACT: Regulators and competition authorities often prevent firms with significant market power, or dominant firms, from practicing price discrimination. The goal of such an asymmetric no‐discrimination constraint is to encourage entry and serve consumers’ interests. This constraint prohibits the firm with significant market power from practicing both behaviour‐based price discrimination within the competitive segment and third‐degree price discrimination across the monopolistic and competitive segments. We find that this constraint hinders entry and reduces welfare when the monopolistic segment is small.