Price Discrimination under Customer Recognition and Mergers

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 behavior‐based price discrimination (BBPD). From a merger polic...

Full description

Saved in:
Bibliographic Details
Published in:Journal of economics & management strategy 2015-09, Vol.24 (3), p.523-549
Main Authors: Esteves, Rosa-Branca, Vasconcelos, Helder
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Competition
Consumer behaviour
Economic equilibrium
Market theory
Mergers
Organizational behavior
Price discrimination
Pricing policies
Profitability
Profits
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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 behavior‐based price discrimination (BBPD). From a merger policy perspective, this paper's main contribution is twofold. 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 ex‐post effect on the outsider firm's profitability, thereby eliminating the so‐called (static) “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.
ISSN:1058-6407
1530-9134
DOI:10.1111/jems.12107