The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination

A primary goal of the 1996 Telecommunications Act isto encourage competition in long-distance telephonemarkets. Four years after passage of thislegislation, Bell Operating Companies (``BOCs') havebeen granted permission to offer long-distanceservices in only one state. The regulatory barrier toentry is justified on grounds that the BOCs have theability to discriminate against incumbentlong-distance carriers in the provision of essentialaccess services. We take this premise as given andquantify the critical level of discrimination requiredto offset the positive consumers' surplus gainsassociated with the enhanced competition resultingfrom BOC entry into long-distance markets.     

Mitigating Monopoly or Preventing Discrimination: Comparing Antitrust to Regulatory Goals in the Interstate Commerce Act

The Interstate Commerce Act and Sherman Antitrust Act were passed within 3 years of each other. Although regulation and antitrust both address market power, the ICA and Sherman Act had different objectives. After a minimal reference to just and reasonable prices, the ICA focused on preventing price discrimination in rail. No posited Sherman Act goal—inequality, consumer welfare, efficiency—is in the ICA. Priority of discrimination in the ICA, however, is predictable. Shippers would care less about absolute rates—which can be passed on to final consumers—and more about preventing rivals from gaining advantages through input price discounts.     

Competition and Price Discrimination: Evidence from the Parking Garage Industry

We study the relationship between competition and price discrimination through an empirical examination of hourly price schedules in the parking garage industry. We find that the degree of price schedule curvature decreases with competition, implying a greater proportionate drop in low‐end prices than in high‐end prices when competition intensifies. Our findings suggest that competition constrains a firm's capacity to exercise price discrimination, confirming the classic textbook theory. We also offer possible explanations for our findings, including a search cost explanation, for which we find some support in the data.     

Still on hold? A retrospective analysis of competitive implications of the Telecommunication Act of 1996, on its 10th year anniversary

This study provides a retrospective analysis exploring competition in the US telecommunication industry, a decade after passage of the highly deregulatory Telecommunications Act of 1996. Using history as a guide, it reviews recent merger activity facilitated by the Act, profiles the present state of concentration in cable and telephony and explores prospects for cross-media competition permitted by the Act.     

Then and Now: Disability Legislation and Employers' Practices in the UK

Using a longitudinal research design, this article considers employers' human resource management practices in respect of disability equality: in 1995 under the Disabled Persons (Employment) Act and in 2003 under the Disability Discrimination Act. The article analyses whether there has been a change to employers' practices and whether or not this change is associated with increased employment of disabled persons. The findings show that proactive HR measures to encourage disabled employment, including positive discrimination, had a significant impact on disabled employment in 1995, whereas HR measures centring on managerial responsibilities and making adaptations had a similar result in 2003. We argue that, for optimum effectiveness, HR departments should employ the full range of HR measures that are available, including positive discrimination, and that this approach should be underpinned by a range of enforcement measures.     

Vertical restraints in the Australian Trade Practices Act

Vertical restraints are singled out for detailed legislative treatment in the AustralianTrade Practices Act. Resale price maintenance and third-line forcing (tying another firm's products) are illegal per se while price discrimination and non-price vertical restraints (apart from third-line forcing) are subject to a competition test. Most vertical restraints may be either authorised by the Trade Practices Commission or given statutory exemption from the Act under a notification procedure unique to vertical restraints. The ability to seek an authorisation or to notify the Commission about a vertical practice has meant that the economic issues in this area have been dealt with mainly in administrative processes outside the courts. While issues of economic efficiency have been important, the main objective of the Commission has been to benefit consumers by promoting competition as a process. This paper briefly overviews what is probably the most complex area of antitrust in Australia yet, which has received negligible academic comment.     

PRICE DISCRIMINATION IN STACKELBERG COMPETITION*

We examine the effects of price discrimination in the Stackelberg competition model for the linear demand case. We show that the leader does not use any price discrimination at all. Rather, the follower does all price discrimination. The leader directs all of its first mover preemptive advantage to attract the highest value consumers who pay a uniformly high price. We observe that profits and total welfare are larger and consumer surplus is smaller than those of the standard Stackelberg competition model.     

Anote on second degree price discrimination and its implications

This paper develops the analytical solution to the standard problem of second degree discrimination and shows that, as the number of discrete prices increases, the market output approaches that of pure competition or perfect price discrimination in the same manner as Cournot oligopolies converge to competitive outcomes. This solution is subsequently compared with that of Third degree discrimination in light of recent contributions of Coase and Varian. This comparison reveals that-1-neither type of discrimination, in its pure form, is empirically likely;-2- actual price discrimination will involve elements of both types;-3- therefore, the analytical solution to second degree discrimination is, contrary to Pigouvian tradition, no less important than that of third degree discrimination.     

On the Absence of Directional Price Discrimination in the U.S. Airline Industry*

Certain forms of price discrimination in oligopoly markets can lead to more aggressive competition and lower profits, yet few empirical studies examine how extensively such strategies are used. I consider one such strategy, testing whether airlines charge different prices on the same flights to passengers that originate from different endpoints. Using fare quote data I formulate a new approach to measure discrimination while controlling for cost heterogeneity and find that carriers within the U.S. domestic market do not engage in directional price discrimination despite frequently using other similar pricing strategies that are unlikely to enhance competition.     

Bertrand Competition with an Asymmetric No‐discrimination Constraint

Regulators and competition authorities often prevent firms with significant market power, or dominant firms, from practicing price discrimination. The goal of such an asymmetric no‐discrimination constraint is to encourage entry and serve consumers' interests. This constraint prohibits the firm with significant market power from practicing both behaviour‐based price discrimination within the competitive segment and third‐degree price discrimination across the monopolistic and competitive segments. We find that this constraint hinders entry and reduces welfare when the monopolistic segment is small.     

Third-degree price discrimination in oligopoly with endogenous input costs

This paper examines the output effect of third-degree price discrimination in symmetrically differentiated oligopoly. We find that when the sellers’ input costs are chosen endogenously by an upstream supplier with market power, as opposed to being fixed exogenously, long-standing qualitative conclusions about the effect of price discrimination on aggregate output can be reversed. In contrast to previous findings (e.g., by Holmes, 1989), more intense competition in the strong market than in the weak market can make it less likely that price discrimination raises aggregate output. For linear demand functions, we establish necessary and sufficient conditions under which the output effect changes sign when input costs are endogenized.     

INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS*

This paper revisits third‐degree price discrimination when input buyers serve multiple product markets. Such circumstances are prevalent since buyers often use the same input to produce different outputs, and even homogenous outputs are routinely sold through different locations. The typical view is that price discrimination stifles efficiency (and welfare) by resulting in price concessions to less efficient firms. When buyers serve multiple markets, price discrimination leads to price breaks for firms in markets with lower demand. When lower demand markets also have less competition, price discrimination can provide welfare gains by shifting output to less competitive markets.     

Estimating the Causal Effect of Entry on Generic Drug Prices Using Hatch–Waxman Exclusivity

Competition among generics helps keep drug prices low and control medical costs. Good estimates of the effect on price of the entry of another generic competitor would inform competition policy and test oligopoly theories. However, identifying the causal effect of entry is difficult since the number of firms that compete in a market is endogenously determined. We exploit provisions of the 1984 Hatch–Waxman Act to identify a causal effect. We find that ignoring endogenous selection into generic drug markets imparts a significant downward bias to the estimates of the effects of two and three competitors on generic drug prices.     

Competition,Prices and Quality in the Market for Physician Consultations

Prices for consultations with General Practitioners (GP's) in Australia are unregulated, and patients pay the difference between the price set by the GP and a fixed reimbursement from the national tax‐funded Medicare insurance scheme. We construct a Vickrey‐Salop model of GP price and quality competition and test its predictions using individual GP‐level data on prices, the proportion of patients who are charged no out‐of‐pocket fee, average consultation length, and characteristics of the GP's, their practices and their local areas. We measure the competition to which the GP is exposed by the distance to other GP practices and allow for the endogeneity of GP location decisions with measures of area characteristics and area fixed‐effects. Within areas, GP's with more distant competitors charge higher prices and a smaller proportion of their patients make no out‐of‐pocket payment. GP's with more distant competitors also have shorter consultations, though the effect is small and statistically insignificant.     

The Pricing of the Emergent Leasehold (Possessory) Estates of Ghana

The paper develops hedonic analyses of the pricing of leasehold versus freehold estates in Ghana. The motivation of the paper is the passage of Act 267(5) in 1992 that effectively abolished outright sale of stool lands in Ghana. Stool lands are lands controlled by tribal "chiefs." Act 267(5) prohibits the sale of freehold estates for stool lands. There are two important findings in this study. The first is that freeholds tend to attract premium prices relative to leaseholds. This supports the bundle-of-rights argument. The second is that the effect of the 1992 Act is indeed capitalized into land prices because of the relative increase in the supply of leaseholds vis-à-vis freeholds. Specifically, the price of freeholds increased relative to the price of leaseholds after the constitutional event. The study also finds that transactions involving stools and individuals, usually perceived to be associated with litigation risk (or title insecurity) relative to government lands, are sold at a discount. Transactions noted to have a history of litigation are also associated with price discounts. The estimated coefficients on all the variables representing services to the site like water, electricity and access roads are significantly positive, indicating a high demand for such essential services.     

Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?

We develop a model of price dispersion to distinguish the impact of price discrimination from that of peak load pricing schemes or atypical competition resulting from the financial difficulties of the early 1990s. By utilizing three alternative measures of dispersion and appealing to economic theory for our specification, we find robust results suggesting an estrangement between price dispersion and price discrimination. While some discrimination continues to persist at monopolized endpoints, most dispersion is associated with fare wars and peak load pricing schemes.     

Partnerships, Profit Sharing, and Quality Competition in the Medical Profession

This paper contains a theoretical model of medicalpartnerships with individual quantity and qualitychoice. The firm selects price, the number ofpartners and profit sharing. The firm encouragesinter-firm quality competition and discouragesintra-firm quality competition through differentialprofit sharing. An empirical model using data from anationwide survey of medical practices supports thetheoretical results. Further, empirical resultssupport the view that time per visit can be used as aproxy index for quality in the primary carephysician market.     

CUSTOMER POACHING AND ADVERTISING*

This paper is a first look at the dynamic effects of customer poaching in homogeneous product markets, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. It is shown that only the firm which advertises the highest price in the first period will engage in price discrimination, a practice that clearly benefits the discriminating firm. This poaching gives rise to ‘the race for discrimination effect,’ through which price discrimination may act actually to soften price competition rather than intensify it. As a result, all firms may become better off, even when only one of them can engage in price discrimination. This paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising. In markets with low or no advertising costs, allowing firms to price discriminate leads them to provide too little advertising, which is not good for consumers and overall welfare. Only in markets with high advertising costs, might firms overadvertise. Regarding the welfare effects, price discrimination is generally bad for welfare and consumer surplus, though good for firms.     

Best Practices for New Product Pricing: Impact on Market Performance and Price Level under Different Conditions

To date, research on new product pricing has predominantly been approached as a choice between market skimming and penetration pricing. Despite calls for research that addresses other complexities in new product pricing, empirical research responding to these calls remains scarce. This paper examines three managerial price‐setting practices for new products, i.e., value‐informed, competition‐informed, and cost‐informed pricing. By engaging in these practices, managers can develop and compare quantifications in order to attain an introduction price for the product. The authors draw on consumer price perception literature, Monroe's pricing discretion model, and numerical cognition literature to develop hypotheses about the impact of price‐setting practices on new product market performance and price level. By studying the effects on market performance and price level, the paper provides insights that may help explain the growth of new products and address the problems of underpricing. The hypotheses are tested in a management survey of 144 production and service companies. The results indicate which pricing practices are superior for the achievement of either higher market performance or higher prices in specific product and market conditions. Whereas value‐informed pricing has an unambiguous positive impact on relative price level and market performance, the results also suggest that in many cases engaging in value‐informed pricing is not enough. The effects of cost‐informed and competition‐informed pricing may differ depending upon the objective (market performance or higher prices), product conditions (product advantage and relative product costs), and market condition (competitive intensity). Engaging in inappropriate pricing practices leads to a decline in new product performance. Moreover, bad pricing practices make the positive effect of product advantage on the outcome variables disappear. The latter finding suggests that companies can jeopardize their efforts and investments in the new product development process if they engage in the wrong price‐setting practices. The findings imply that managers should consider different factors in new product pricing. First, when launching a new product, they should determine their explicit pricing objective, either stressing market performance or a higher price level. To determine the most appropriate pricing practices, however, they should next assess their situation in terms of product advantage, relative product costs, and competitive intensity. Together with the pricing objective, these conditions determine the best pricing practice. On a higher level, the findings imply that companies should invest in knowledge development in order to engage in the appropriate pricing practices for each product launch.     

Peak-Load Versus Discriminatory Pricing: Evidence from the Golf Industry

Using a unique dataset on the golf industry we analyze the weekend premium in golf course fees. Since both peak-load pricing and price discrimination may be at play, we attempt to separate these two forms of pricing. We find that as competition increases there is a decrease in the weekend premium, which we attribute to price discrimination. Additionally, we find that resort courses and courses that are heavily dependent on tourism have less differential pricing, which we attribute to less peak demand and less peak-load pricing.