Economic And Legal Analysis Of Price Discrimination

This article surveys the effects on competition and social welfare of price discrimination. One the one hand, dominate companies may use price discrimination as an effective tool to reinforce their market power. On the other hand, when compared to uniform pricing, price discrimination may enhance competition and increase social welfare, even consumer welfare. With monopoly, price discrimination enables the monopolist to extract consumer surplus, which may obstruct the fair distribution of welfare. However, price discrimination may also reduce the net loss of welfare by eliminating the restrictions on output by uniform pricing. With competition, price discrimination usually induces more intense competition and improved consumer surplus with lower prices. A ban on price discrimination may serve as a coordinating system for competing firms to sustain uniform prices. Due to the indefinite effects of price discrimination, a form-based law against price discrimination may generally enhance industry profits at the expense of consumer welfare, especially in the presence of competition. Therefore, the Rule of Reason shall be adopted by related antitrust law, and assessments on different forms of price discrimination should be based on their specific economic effects after careful analysis.