An Empirical Investigation of the Welfare Effects of Banning Wholesale Price Discrimination

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream costs differences exist then discrimination shifts production inefficiently, towards high cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if more market is covered, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition.