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

Sofia Villas-Boas ()

No 1017, Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: I empirically investigate the welfare effects of banning upstream price discrimination. Theory suggests that opposing forces are at work. On one hand, the existence of downstream retail cost differences suggests that banning wholesale price discrimination will increase welfare. On the other hand, retailer quality differentiation, that may lead to differences in retail elasticities, suggests the opposite. Using retail level scanner data on coffee produced by multiple manufacturers and sold at the largest retail outlets in Germany, I estimate a structural demand and oligopoly model with multiple retailers and manufacturers, which I use to recover brand-level marginal costs. I use the estimates to simulate the welfare effects of banning wholesale price discrimination. The results suggest that banning price discrimination will have positive welfare effects. I show through simulations that the estimated positive welfare effects are reduced if downstream cost differences shrink or if there is less competition in the market. These results have policy implications for a variety of markets where bans on wholesale price discrimination have been considered.

Keywords: Uniform Wholesale Pricing; Oligopoly models of multiple manufacturers and retailers; Coffee Retail Market; Welfare (search for similar items in EconPapers)
Date: 2008-08-08
Note: oai:cdlib1:are_ucb-1113
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Journal Article: An empirical investigation of the welfare effects of banning wholesale price discrimination (2009)
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