Fabian Herweg, Daniel Müller, 07 April 2015

Manufacturers discriminating among retailers is an important issue in competition policy. Specifically, the EU allows quantity discounts but forbids discriminatory discounts – a policy that does not jive with standard economic analysis which suggests that banning price discrimination improves allocative efficiency and typically also raises overall welfare. This column argues that the research – and the recommendations that flow from it – are based on excessively restrictive assumptions. When there are nonlinear wholesale contracts, e.g. quantity discounts, the presence of private information can reverse the standard analysis in a way that supports the EU’s policy. 

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