On Anticompetitive Third-Degree Price Discrimination

• Department of Economics

This event features a discussion Eugenio Miravete (University of Texas at Austin).

Third-degree price discrimination increases output and welfare only if certain local demand curvature conditions hold. Although known for nearly a century, these curvature conditions have never been evaluated empirically before. To do so, demand specification must be flexible enough to allow for curvature heterogeneity across local markets. Otherwise, whether output and welfare could increase with price discrimination is predetermined. I show that with the notable exception of the logit demand, most other demands families predict negative output and welfare effects of price discrimination, as their elasticity and curvature are negatively correlated. I use supermarket scanner data to evaluate demand curvature conditions for thousands of chain products and show that, more often than not, local store pricing decreases output and welfare relative to uniform chain-store pricing. Furthermore, I show that using output as a proxy for welfare as Robert Bork suggested understates the potential welfare loss of price discrimination.