A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets

Aguirre, Iñaki and Yenipazarli, Arda (2022): A Rationale for the “Meeting Competition Defense” when Competitive Pressure Varies Across Markets.

Abstract

This paper analyzes the economic implications of oligopoly price discrimination when competition pressure varies across markets. We find that a necessary condition for price discrimination to enhance social welfare is satisfied when the number of firms is higher in the strong market compared to the weak market. We also investigate certain economic implications of the Robinson-Patman Act (RPA) associated with “meeting competition defense” (MCD). Using equilibrium models, we find a basic rationale for the MCD: in cases of primary-line injury, when competitive pressure is more pronounced in the strong market relative to the weak market, the use of MCD might allow price discrimination to enhance welfare by boosting consumer surplus in the weak market. This result holds true regardless of whether price discrimination occurs in the final good market or intermediate good market, and it is robust to the nature of competition. We also unravel that these results change drastically under secondary-line injury.

• Item Type: MPRA Paper
• Language: English
• Keywords: third-degree price discrimination, Robinson-Patman Act, meeting competition defense, oligopoly, welfare.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices

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