Competitive Price Discrimination: The Exercise of Market Power Without Anticompetitive Effects (Comment on Klein and Wiley)

Abstract

A firm that discriminates in prices faces a downward sloping demand curve, and thus could potentially raise price by reducing output. For this reason, evidence of price discrimination is relevant to assessing the possibility of market power, as antitrust law has long recognized. But price discrimination can be beneficial as well as harmful, and can reasonably be termed competitive if entry is easy. Hence a demonstration that entry is easy rebuts the inference of anticompetitive effect when price discrimination is the basis for proof of market power, breaking the link between market power and anticompetitive effect. Klein and Wiley's proposal that courts should never infer market power from price discrimination is unnecessary to insulate competitive price discrimination from antitrust scrutiny, introduces a confusing distinction between market-power-in-economics and market-power-in-antitrust, and risks insulating from liability firms engaged in price discrimination when discrimination or the practices that facilitate it would harm competition.