Fighting collusion by permitting price discrimination

Abstract

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Collusion under different pricing schemes

“…9 The author finds that collusion is easier to sustain the lower transport costs are, 10 and that colluding on discriminatory prices is harder than on a uniform price. 11 For third-degree price discrimination, Helfrich and Herweg (2016) find that price discrimination helps to fight collusion not only under best-response asymmetries (lower static Nash equilibrium profits under price discrimination) as in Liu and Serfes (2007), but also under best-response symmetries (higher static Nash equilibrium profits under price discrimination).…”

Spatial pricing and collusion

“…This differs from Helfrich and Herweg (2016) and reflects, in part, endogenizing locations. Uniform pricing involves dramatic location changes from market ends during punishment to the center (9)…”

“…Colombo (2012) examines a quantity game rather than a pricing game. Helfrich and Herweg (2016) consider two consumer groups and two symmetrically located firms able to set discriminatory prices for the groups. They show the stability requirement with discrimination exceeds that without and stress the importance of 'fighting collusion by permitting discrimination '.…”

“…While Helfrich and Herweg (2016) show that price discrimination more generally impedes collusion, neither they nor the existing literature typically compare full spatial price discrimination with freight on board. In an early study, Espinosa (1992) contrasts collusion under two versions of uniform pricing, freight on board and a uniform delivered price.…”

“…Thus, the critical question for antitrust authorities should be whether price discrimination facilitates or impedes collusion. Helfrich and Herweg (2016) argue that price discrimination in general may be helpful. When firms discriminate, collusion on price becomes less likely as the discount factor needed to ensure stability becomes higher.…”