Unfair Business Practices Price discrimination Predatory pricing Tying

Unfair Business Practices - Price discrimination - Predatory pricing - Tying - Exclusive dealing - Exclusive territories - Resale price maintenance 9

Price Discrimination Injuries to rival firms, or to disfavored customers, through discriminatory prices Firm Manufacturer high price low price high price Monopoly Region Competitive Region Large Retailer Small Retailer Price discrimination according to consumers’ demand characteristics – i. e. , charging high (low) price on highdemand (low-demand) users should be allowed. 10

Predatory Pricing Aggressive pricing by a dominant firm designed to induce the exit of a rival firm. Two criteria: (i) prices must be low solely through the attempt to induce the exit of the rival, and (ii) any losses that the predator incurs in its attempt to drive out rivals must be realistically recouped through monopoly price after the victim firm has exited. 11

Tying Restriction by a monopoly manufacturer of good A that all requirements of another good B (which may be produced under conditions of varying competition) must be purchased from the same firm. Negative side: Extending monopoly power in one market to another competitive market. Positive side: Preserving functional or technical complementarities between two goods. 12

Exclusive Dealing Contract between upstream and downstream firms for exclusive supply M 1 M 2 R (A manufacturer restricts a retailer to carry only the manufacturer’s products, and not those of any rival manufacturers. ) Negative side: Impairing upstream competition Positive side: Providing the manufacturer with incentives of promotional efforts 13

Exclusive Territories Division of a downstream market into a set of territorial monopolies, each assigned to one retailer. M R 1 R 2 Negative side: Impairing downstream competition Positive side: Providing retailers with incentives of promotional efforts 14

Resale Price Maintenance Attempt by an upstream manufacturer to control the price at which the product is resold, mostly in the form of price floor. Resale price maintenance and exclusive territories are alternative ways of achieving the same objective. Negative side: Facilitating manufacturer or retailer cartel Positive side: Providing retailers with incentives of promotional efforts 15

Summary Negative side Positive side Price discrimination Injure competitors Serve low-demand us Predatory pricing Induce a rival’s exit Low prices Tying Extend monopoly power Complementarities Exclusive dealing Hurt upstream competition Upstream promotion Exclusive territories Hurt downstream competition Downstream promotion Resale price maintenance Hurt downstream competition Downstream promotion 16