1 Pre dsrmnaton Types of pre dsrmnaton The (ambguous welfare effets of pre dsrmnaton Parallel mports: not justfed the EU per se prohbton of lauses whh preent parallel mports. Pre dsrmnaton as monopolsaton dee Ant-dumpng
Pre dsrmnaton It s a perase phenomenon: examples Three types of pre dsrmnaton (PD: 1 st degree (perfet PD nd degree PD: self-seleton of onsumers 3 rd degree PD: when dfferent obserable haratersts Two man ngredents of pre dsrmnaton - ablty to sort out dfferent onsumers and harge them dfferent pres - no arbtrage opportuntes
Welfare effets of PD PD s not always bad: the extreme ase of 1 st degree PD, under whh the frst-best s attaned (but: unrealst example Quantty dsounts ( nd degree PD. If onsumers are harged aordng to Tpq, the unt pre (pt/q dereases wth the number of unts bought. Welfare nreases beause the fxed fee s used to extrat surplus, allowng for a lower arable omponent than under lnear prng 3
4 Quantty dsounts: welfare effets A monopolst seres two types of onsumers, l ( low and h ( hgh, wth weght and 1- n the market. Type s (l,h demand s: q -p, wth h > l. The monopolst s margnal ost s < l. No dsounts, or unform prng (both markets sered. The frm s programme s: Max p Π(p- [ ( l -p- ( h -p] From dπ/dp0, the soluton s:
5 Quantty dsounts, II ( ( (. 8 3. 4 ; l h h l u h l u h l u W p Π Quantty dsounts: Two-part tarffs as PD The monopolst uses the tarff Tpq. Assume also that l >( h /, whh ensures all buy under both unform (lnear prng and two-part tarffs. For low types to buy, the frm wll set TCSl( l -p /. Therefore, ts programme beomes:
6 Quantty dsounts, III Max p Π(p-(( l -p- ( h -p( l -p /, whose soluton s gen by p qd - ( h - l. One an hek that p qd <p u, Π qd <Π u, and W qd <W u. Intutons: the frm makes more money beause t has two nstruments (T,p rather than one (p. Varable part s lower than p u beause the fxed part s used to extrat surplus (and ths explans why W s hgher.
7 3 rd degree PD and parallel mports Re-nterpret the model aboe: h and l are two EU ountres wth dfferent demands (transport osts set to zero for smplty. If pre dsrmnaton aross ountres s allowed: In eah ountry, the frm soles max p Π (p -( -p, wth soluton:. 4 ( 4 ( 8 3 ; 4 ( 4 ( ; Π W p d d d
Parallel mports, II If PD was prohbted (.e., the frm annot preent parallel mports, then two ases may arse: 1 Under unform prng, sales n both markets. In that ase, same result as preous example, and: W d <W u. Under unform prng, one market s not sered: the frm may prefer to set p h ( h /, een f ths mples no sales n ountry l. Example: f h > l, q l 0, and Π h -( h - /4. If small enough, then Π h >Π u and W h >W u. General result: PD welfare detrmental f q PD dereases. 8
9 Further remarks PD and nestments. Sne PD nreases the frms profts, the unform prng poly may hae long-run negate effets (on nestments, nnoatons et. PD and market power. Both small and large frms wll hae nentes to dsrmnate pres aross ountres. But n the former ase welfare effets are less releant. To the extent that PD wll ndue frms to nest more, allowng small frms to engage n PD may foster ompetton. Sensble, to use a safe harbour: PD allowed for frms below a ertan market share (not the urrent poly!.
PD as monopolsaton dee PD may also affet market struture,.e. be used by an numbent to exlude rals. For nstane, we hae seen that dsrmnatory offers help exlude entrants Rebates and selete dsounts are other possble forms of PD whh may lead to exluson (but not muh theory on ths. But an oblgaton to domnant frms not to dsrmnate (transparent prng may hae aderse effets (helps a domnant frm to sole the ommtment problem 10
11 Ant-dumpng atons Ant-dumpng atons are allowed by WTO rules, proded two ondtons are fulflled: 1 export pres are below ther normal alue exports ause a materal njury to the mportng ountry s ndustry Both ondtons are ambguous (subjet to poltal nfluene: ant-dumpng prosons often used. But dfferng export and home pres s not an unfar prate : predatory pre test should be used nstead. Lkely aderse onsequenes on onsumers, mportng setors (and olluson may be faltated.