Price Discrimination under Customer Recognition and Mergers

Helder Vasconcelos and Rosa Esteves ()

No 7683, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies the interaction between horizontal mergers and price discrimination by endogenizing the merger formation process in the context of a repeated purchase model with two periods and three firms wherein firms may engage in Behaviour-Based Price Discrimination (BBPD). From a merger policy perspective, this paper's main contribution is two-fold. First, it shows that when firms are allowed to price discriminate, the (unique) equilibrium merger gives rise to significant increases in profits for the merging firms (the ones with information to price-discriminate), but has no effect on the outsider firm's profitability, thereby eliminating the so called `free-riding problem'. Second, this equilibrium merger is shown to increase industry profits at the expense of consumers' surplus, leaving total welfare unaffected. This then suggests that competition authorities should scrutinize with greater zeal mergers in industries where firms are expected to engage in BBPD.

Keywords: Behaviour-based price discrimination; Customer poaching; Horizontal mergers (search for similar items in EconPapers)
JEL-codes: D43 L13 L15 L41 (search for similar items in EconPapers)
Date: 2010-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Price Discrimination under Customer Recognition and Mergers (2015)
Working Paper: Price Discrimination under Customer Recognition and Mergers (2009)
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