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Open Access Publications from the University of California

An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination

  • Author(s): Villas-Boas, Sofia B
  • et al.

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream costs differences exist then discrimination shifts production inefficiently, towards high cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if more market is covered, 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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