The Welfare Effects of Forbidding Discriminatory Discounts: A Ssecondary Line Analysis of Robinson-Patman

Abstract

We examine the welfare effects of forbidding price discrimination in intermediate goods markets when firms can bargain over terms of their nonlinear supply contracts. In particular, our focus is on secondary line injury to competition under three interpretations of what it means to forbid price discrimination. We find that in each case, forbidding discriminatory discounts renders retailer bargaining power useless in mitigating manufacturer market power. As a result, all retailers end up paying higher input prices, and all retail prices rise. We show by example that the welfare loss can be substantial.